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AMERICAN 
RAILWAY   TRANSPORTATION 


APPLETONS'   BUSINESS   SERIES. 


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D.   APPLETON    AND     COMPANY,     NEW    YORK 


AMERICAN    RAILWAY 
TRANSPORTATION 


EMORY  Rn9HNS0N,    Ph.  D. 

PROFESSOR    OF   TRANSPORTATION   AND    COMMERCE 

IN   THE    UNIVERSITY    OF   PENNSYLVANIA 

MEMBER    OF   THE   ISTHMIAN    CANAL   COMMISSION    1 899   TO    I9O4 


REVISED   EDITION 


NEW    YORK 

D.  APPLETON   AND    COMPANY 

1905 


Copyright,  1903,  1904,  by 
D.   APPLETON  AND  COMPANY 


Published  August,  1903 


(^•3  H?o 


'  '.V 


CONTENTS 


CHAPTER  I 

PAGES 

Introduction—Definition  and  Scope   of  Transporta- 
tion       1-9 

Transportation  defined,  1.  The  technics  of  transportation,  1. 
The  service — The  economics  of  transportation,  3.  Transpor- 
tation economics  and  the  science  of  political  economy,  2. 
Transportation  and  the  production  of  wealth,  3.  Transporta- 
tion and  the  use  or  consumption  of  wealth,  3.  Relation  of 
transportation  to  the  exchange  of  wealth  or  commerce,  4. 
Relation  of  transportation  to  the  distribution  of  wealth,  5. 
Transportation  and  political  science,  7.  The  scope  of  this 
volume,  9. 

PART  I.— THE  AMERICAN  RAILWAY  SYSTEM 

CHAPTER  n 

Origin  of  the  American  Railway        ....    13-23 
Antecedents  of  the  railway,  13.     Country  roads,  13.     Canals 
and  improved  rivers,  14.     Origin  of  the  railway,  18.     Early 
history  of  the  railway  in  America,  21.     References  for  further 
reading,  23. 

CHAPTER  III 

Growth  of  the  American  Railway  Net     .       .       .    24r-33 

Growth  in  mileage  by  decades,  24.  Importance  of  the  decade 
1850-60,  25.  Railroad  consolidations,  25.  Completion  of 
present  trunk  lines,  26.  Land  grants  and  Pacific  roads,  27. 
The  decade  1860-'70,  27.  Rapid  construction  from  1880  to 
1890,  28.  Construction  since  1890,  28.  Comparison  of  Amer- 
ican and  European  railway  mileage,  29.  Magnitude  of  the 
railway  system  of  the  United  States,  29.  References  for 
further  reading,  33. 

V 


VI  AMERICAN  RAILWAY  TRANSPORTATION 

CHAPTER  IV 

PAGES 

The   Mechanism   of    the    Railway— Its   Technical 

Growth 34-51 

The  track,  35.  The  locomotive,  38.  Evolution  of  the  passen- 
ger-coach, 46.  The  freight-car,  48.  Terminal  facilities,  50. 
References  for  further  reading,  51. 

CHAPTER  V 

The  Present  Railway  System  of  the  United  States  52-68 
Mileage  and  number  of  corporations  in  1901,  52.  System  as 
a  whole  too  vast  to  be  readily  comprehended,  52.  The  three 
large  territorial  groups  of  railroads,  52.  Territorial  grouping 
into  seven  sections,  54.  Grouping  by  ownership  and  commu- 
nity of  interest,  60.  Supply  of  railway  facilities  in  the  United 
States,  66.    References  for  further  reading,  68. 

CHAPTER  VI 

The  Railway  Corporation  and  its  Charter  .  .  69-77 
The  corporation  defined,  69.  The  corporation  and  partner- 
ship distinguished,  70.  The  railway  company  is  a  quasi-pub- 
lic private  corporation,  71.  The  railway  corporation  is  a 
"  person,"  72.  Railway  charters,  73.  Size  of  railway  corpora- 
tions, 75.  Insolvent  corporations,  76.  References  for  further 
reading,  77. 

CHAPTER  VII 

Railway  Capital 78-96 

Stocks  and  bonds,  78.  Different  classes  of  bonds,  79.  Amount 
of  railway  capital  in  the  United  States,  80.  Stock  watering, 
82.  Motives  for  stock  watering,  86.  The  promoter  and  under- 
writer, 86.  Methods  of  stock  watering,  87.  Effects  of  stock 
watering,  90.  Bases  of  railway  capitalization,  91.  Govern- 
ment regulation  of  capitalization,  94.  References  for  further 
reading,  96. 

CHAPTER  VIII 

Earnings,  Expenses,  and  Dividends  ....  97-107 
Sources  of  revenue,  97.  Expenditures,  99.  Net  earnings  and 
surplus,  100.  Dividends,  102.  Relation  of  earnings  and  divi- 
dends to  business  conditions,  104.  Causes  of  increased  earn- 
ings, 105.  Railway  earnings  and  the  prices  of  securities,  106. 
References  for  further  reading,  107. 


CONTENTS  vil 

PART  II.— THE  RAILWAY  SERVICE 

CHAPTER  IX  PAGES 

The  Freight  Service 111-134 

The  freight  business  the  most  important  service,  111.  Vol- 
ume of  freight  traffic,  113.  Classification  of  freight,  113. 
Extracts  from  the  official  classification,  115.  Commodity- 
tariffs,  116.  Uniform  classification,  117.  Through  and  local 
freight,  118.  Methods  of  conducting  the  freight  service,  119. 
The  freight  bill,  120.  The  bill  of  lading,  123.  The  way-bill, 
123.  Records  of  car  movements,  124.  Straight  and  mixed 
cars,  126.  Fast  freight  lines,  127.  Cooperative  freight  lines, 
129.  The  railway  clearing-house,  130.  Private  cars,  131. 
Car  mileage  and  demurrage,  132.  References  for  further 
reading,  133. 

CHAPTER  X 

The  Passenger  Service 135-157 

General  characteristics  of  the  passenger  service,  135.  Passen- 
ger fares  have  declined  less  than  freight  rates  in  the  United 
States,  137.  Volume  of  business  and  earnings,  138.  Extent 
of  travel  in  the  United  States  as  compared  with  Europe,  139. 
Classification  in  the  passenger  traffic — European  and  Amer- 
ican practise,  141.  The  sleeping-,  parlor-,  and  dining-car 
service,  145.  Tickets  and  baggage  checks,  147.  Methods 
employed  to  increase  travel,  148.  Opportunities  for  further 
increasing  travel,  150.  Ticket  brokerage,  152.  Free  passes, 
153.  Electricity  and  the  passenger  service,  155.  References 
for  further  reading,  157. 

CHAPTER  XI 

The  Express  Service  of  the  Railways  .       .       .    158-169 

What  the  express  service  comprises,  158.  The  kinds  of 
express  companies,  160.  The  history  of  express  companies, 
161.  The  contracts  between  express  and  railway  companies, 
163.  The  organization  by  which  the  express  service  is  per- 
formed, 164.  The  amount  of  business  done,  165.  The  post- 
office  and  the  express  service,  166.  Ought  the  express  service 
to  be  done  by  the  railway  companies  ?  167,  References  for 
further  reading,  169, 


vm  AMERICAN  RAILWAY  TRANSPORTATION 

CHAPTER  XII  P^oEs 

The  Mail  Service  of  the  Railways        .       .       .    170-183 

The  mail  service  increases  with  the  progress  of  civilization, 
170.  Classification  of  mail-matter,  171.  General  statistics  of 
mail  traffic,  172.  The  extent  of  the  mail  service  performed 
by  the  railways,  173.  The  mail  service  in  operation  June  30, 
1901,  175.  The  railway  post-office,  176.  Nature  and  condi- 
tions of  the  railway  mail  service,  177.  Pay  received  by  the 
railways  for  carrying  the  mails,  179.  The  cost  to  the  Govern- 
ment of  railway  mail  transportation,  181.  References  for 
further  reading,  183. 

CHAPTER  XIII 

The  Organization  op  the  Service     ....    184-194 

The  railway  company's  corporate  and  special  organization, 
184  The  secretary's  department  and  the  law  department, 
185.  The  financial  department,  185.  The  operating  depart- 
ment, including  the  roadway,  machinery,  and  transportation 
departments,  186.  The  traffic  department,  188.  The  pur- 
chasing, real-estate,  insurance,  and  relief  departments,  189. 
The  organization  of  the  Erie  Railroad  Company,  190.  The 
organization  of  the  Illinois  Central  Railroad  Company,  191. 
The  organization  of  the  Pennsylvania  Railroad  Company,  192. 
References  for  further  reading,  194. 

CHAPTER  XIV 

The  Accounts  and   Statistics   of    the   Railway 

Service 195-210 

The  usefulness  of  railway  accounts,  195.  The  materials  of 
railway  accounts  and  statistics,  195.  The  auditor's  monthly 
report,  196.  The  annual  report,  197.  Outline  of  the  contents 
of  a  railroad  report,  197.  The  bookkeeping  form  of  the  reve- 
nue account  and  general  balance-sheet,  199.  Concerning  the 
accuracy  and  uniformity  of  railway  accounts,  201.  Govern- 
ment supervision  of  railway  accounts,  203.  The  present  scope 
of  railroad  statistics,  204.  Suggested  extensions  of  the  scope 
of  the  Government  statistics  of  transportation,  206.  Trans- 
portation statistics  and  the  Department  of  Commerce  and 
Labor,  209.    References  for  further  reading,  209, 


\ 


CONTENTS  ix 

PART  III.— THE  RAILWAYS  AND  THE  PUBLIC 
CHAPTER  XV 

INTERRAILWAY   RELATIONS 

PAGES 

I.  Railway  Competition  and  Agreements  to  main- 

tain Rates 213-227 

The  public  nature  and  the  unity  of  the  transportation  service, 
313.  Railway  companies  are  cooperators  and  competitors,  314. 
Early  interrailway  relations,  315.  Early  arrangements  for 
through  traffic,  316.  Interrailway  rivalry — its  beginnings, 
317.  The  struggle  for  the  Chicago-Atlantic  traffic,  318. 
The  rivalry  of  the  Atlantic  ports,  319.  Early  competition  in 
the  West  and  South,  330.  Nature  of  railway  competition, 
331.  The  railway  business  one  of  "  increasing  returns,"  333. 
The  restraint  of  interrailway  competition  a  necessity,  334. 
Cooperation  or  consolidation  is  the  alternative,  334.  Agree- 
ments to  maintain  rates,  335.    The  Saratoga  Conference,  336. 

CHAPTER  XVI 

INTERRAILWAY   RELATIONS   (continued) 

II.  Pools  and  Traffic  Associations  ....    228-243 

Definition  of  pooling,  338.  Description  of  traffic  and  money 
pools,  338.  The  beginning  of  railway  pooling,  330.  Pooling 
in  the  West,  331.  The  traffic  association  and  the  pool  distin- 
guished, 333.  Pools  in  the  South,  333.  Early  agreements  in 
trunk-line  territory,  334.  The  trunk-line  pool  and  the  Joint 
Executive  Committee,  335.  The  situation  as  regards  railway 
pooling  in  1887,  338.  Pooling  prohibited  by  the  Interstate 
Commerce  Act,  339.  Pooling  contracts  were  illegal  at  com- 
mon law,  339.  Reorganization  of  pooling  contracts  to  elimi- 
nate the  pooling  feature,  341. 

CHAPTER  XVII 

INTERRAILWAY  RELATIONS   {concluded) 

III.  The  Present  Situation 244-257 

Efforts  of  trunk  lines  to  regulate  competition  after  the  prohi- 
bition of  pooling,  344.  Traffic  associations  decided  to  be  a 
violation  of  antitrust  law  of  1890,  345.  Effect  of  the  decision 
in  the  traffic  association  cases,  347,    Existing  traffic  associa- 


X  AMERICAN   RAILWAY  TRANSPORTATION 

tions,  248.  Causes  of  the  recent  railway  consolidations,  250. 
Methods  of  consolidation,  251.  "  Community  of  interest," 
253.  Inte*railway  relations,  present  and  prospective,  254. 
The  present  phase  of  the  pooling  question,  256.  Ref6i-euces 
for  further  reading,  256. 

CHAPTER  XVIII 

Monopoly    and    Competition    in  .the     Railway 

Service 258-270 

Railway  corporations  must  be  large  and  must  cooperate,  258. 
Scope  of  railway  monopoly  must  be  understood  in  consider- 
ing charges  and  Government  regulation,  259.  What  is  meant 
by  monopoly,  259.  The  Standard  Oil  Company  an  example 
of  monopoly,  261.  The  railroad  business  has  not  been  a  com- 
plete monopoly,  261.  Railway  cooperation  is  of  two  kinds — 
The  attitude  of  the  law  toward  each  kind,  262.  Railway 
competition  is  of  two  kinds,  264.  Railway  competition  is  not 
confined  to  junction  points,  264.  The  competition  of  mar- 
kets, 265.  Influence  of  competition  upon  local  rates,  267. 
The  monopoly  of  the  railroads  is  only  partial,  269.  Govern- 
ment regulation  of  a  partial  monopoly  may  be  necessary,  269. 
The  term  natural  monopoly  not  strictly  accurate,  270.  Refer- 
ences for  further  reading,  270. 

CHAPTER  XIX 

Theory  of  Rates  and  Fares 271-282 

The  cost  of  service  theory  of  rates  and  fares,  271.  Meanings 
of  the  term  cost,  271.  The  impossibility  of  determining 
exactly  the  cost  of  a  particular  service,  272.  Cost  an  unde- 
sirable as  well  as  an  impracticable  basis  of  railway  charges, 
274.  The  value  of  the  service  theory  of  charges,  274.  The 
value  of  commodity  theory,  or  the  taxation  principle,  of 
charges,  275.  Charging  "what  the  traffic  will  bear,"  277. 
What  constitutes  a  theoretically  just  rate"?  277.  Discrimina- 
tions may  be  just  or  unjust,  279.  The  socialization  of  rates 
and  fares,  280.    References  for  further  reading,  282. 

CHAPTER  XX 

Rate-making  in  Practise 283-292 

The  problems  of  rate-making  different  for  private  and  State 
railways,  283.     The  probleui  of  rate-making,  284.    Classifica,- 


CONTENTS  XI 

tion  the  first  step  in  making  freight  rates,  285.  The  railroad 
companies  work  separately  and  in  cooperation  in  making 
rates,  287.  How  charging  ">vhat  the  traffic  will  bear"  works 
in  practise,  288.     Passenger  fares,  288.     Ideal  rate-making, 

290.  General  tariff  policy  of  American  and  foreign  railways, 

291.  References  for  further  reading,  292. 

CHAPTER  XXI 

PAGES 

Railway   Charges    in    the    United    States   and 

OjHER  Countries 293-304 

The  general  index  of  railway  charges,  293.  Passenger  fares 
in  the  United  States,  295.  Passenger  fares  in  England,  295. 
Fares  in  Prussia,  295.  Fares  in  France,  296.  Fares  in  Hun- 
gary and  Austria,  297.  Passenger  fares  are  cheaper  in 
Europe  than  in  the  United  States,  299.  Freight  rates  in  the 
United  States,  800.  Freight  rates  in  the  United  Kingdom, 
301.  Freight  rates  in  Prussia  and  France,  301.  Freight 
rates  in  Austria  and  Hungary,  302.  Causes  of  low  freight 
rates  in  the  United  States,  303.  References  for  further 
reading,  304. 

PART  IV.— THE  RAILWAYS  AND  THE  STATE 

CHAPTER  XXII 

Public  Aid  to  Railway  Construction  .  .  .  307-321 
The  twofold  relation  of  the  Government  to  the  railways,  307. 
Aid  given  by  the  States  to  railroads,  308.  Forms  of  aid  given 
by  the  States,  309.  Amount  of  aid  given  by  the  States,  309. 
The  results  of  State  aid  were  unsatisfactory,  310.  National 
aid  to  railway  construction,  311.  Terms  of  the  land  grants, 
312.  The  grants  to  the  Pacific  roads,  313.  Repeal  of  the 
land  grants,  315.  The  loan  of  public  funds  to  aid  railroads, 
316.  Concerning  the  policy  of  loans  and  land  grants,  317. 
County,  municipal,  and  individual  aid  to  railroad  building, 
319.      Local    individual  aid,   320.      References    for  further 

reading,  321. 

CHAPTER  XXIII 

Relation  of  the  Railways  to  the  State  in  the 

United  Kingdom  and  France  ....    322-334 
Public  regulation   or  control  a  necessity,  322.     The  forms 
which  the  state's  relation  to  railways  may  assume,  324.    The 


XU  AMERICAN  RAILWAY  TRANSPORTATION 

railways  of  the  United  Kingdom  received  no  state  aid,  325. 
The  United  Kingdom  has  never  favored  state  ownership,  325. 
Early  reliance  in  England  upon  competition  for  the  regula- 
tion of  railways,  326.  The  law  of  1854,  327.  The  acts  of 
1873  and  1888,  328.  Present  system  of  railway  regulation  in 
the  United  Kingdom,  329,  The  railway  clearing-house,  330. 
The  railways  and  the  state  in  France,  330.  State  aid  to  con- 
struction in  France,  331.  The  extension  of  the  charters,  331. 
The  state  guarantees  of  1859, 331.  The  agitation  for  state  pur- 
chase and  construction,  332.  The  law  of  1883  and  the  present 
policy  of  France,  333.    References  for  further  reading,  334. 

CHAPTER  XXIV 

PAGES 

Relations  of  the   Railways   and   the  State  in 

Italy  and  Germany 335-348 

Private  ownership  and  Government  operation,  335.  Govern- 
ment ownership  and  corporation  management,  336.  Relation 
of  the  railways  to  the  state  in  Italy,  336.  Germany's  railway 
policy  is  government  ownership  and  operation,  337.  Prussian 
laws  of  1838  and  1842,  339.  The  period  from  1848  to  1870— 
Military  influences,  340.  The  nationalization  of  the  Prussian 
railroads,  340.  The  methods  followed  in  the  nationalization, 
341.  Private  railways  in  Prussia,  341.  Results  of  Prussian 
railway  management,  342.  Influence  of  Prussia  upon  other 
European  countries,  344.  Dual  ownership  by  corporations 
and  the  Government  not  advantageous,  345.  Causes  account- 
ing for  different  relations  of  the  state  to  the  railways  in 
different  countries,  346.    References  for  further  reading,  348. 

CHAPTER  XXV 

Regulation  of  Railways  by  the  American  State 

Governments— The  State  Commissions.  .  349-366 
Powers  of  the  Federal  and  State  governments  over  railways, 
349.  Regulation  was  slight  before  1870,  350.  Early  regula- 
tion— Charter  limitations  on  charges  and  profits,  350.  State 
railway  commissions  first  established  by  the  New  England 
States,  352.  Duties  assigned  to  early  commissions,  353.  Ori- 
gin and  types  of  existing  commissions,  353.  The  supervisory 
commission,  354.  Railway  regulation  in  the  West  and  South 
— The  mandatory  commission,  355.  The  granger  laws  and 
the  Illinois  commission,  357.    The  "  granger  laws  "  upheld  by 


CONTENTS  xm 

the  Supreme  Court,  1877,  359.  The  Wabash  decision  limiting 
State  authority  to  intrastate  traffic,  359.  The  modification  of 
the  early  granger  laws,  361.  The  present  tendency  is  toward 
the  mandatory  commission,  362.  The  regulation  of  street- 
railways  by  State  commissions,  363.  Conclusions,  364.  Ref- 
erences for  further  reading,  366. 

CHAPTER  XXVI 

Railway   Regulation   by  the   Federal  Govern- 
ment.—The  Interstate  Commerce   Commis-        p-^o^s 

siON 367-385 

The  general  cause  accounting  for  demand  for  Federal  regula- 
tion, 367.  The  Windom  report,  1874,  367.  Competition 
brought  cheap  but  discriminating  rates,  368.  The  Cullom 
report,  1886,  368.  The  enactment  of  the  Interstate  Com- 
merce Act,  1887,  369.  Main  provisions  of  the  Interstate 
Commerce  Act,  370.  The  interstate  commerce  law  in  prac- 
tise, 375.  The  commission's  power  to  investigate,  376.  The 
power  of  the  commission  to  adjust  rates  and  fares,  378.  The 
long  and  short  haul  clause,  378.  Discriminations  in  favor  of 
imports,  381.  Results  accomplished  by  the  Interstate  Com- 
merce Commission,  382.  Powers  required  by  the  commission 
for  the  adequate  regulation  of  railways,  383.  References  for 
further  reading,  385. 

CHAPTER  XXVII 

The  Courts  and  Railway  Regulation  .  .  .  386-407 
Laws  are  partly  court  made,  386.  The  Trans-Missouri 
Freight  Association  case  an  illustration  of  the  influence  of 
the  courts  on  laws,  386.  Powers  of  the  courts  to  regulate 
railways  are  derived  from  the  constitutions,  the  statutes,  and 
the  common  law,  387.  History  of  the  assertion  by  the  Fed- 
eral courts  of  equity  powers  over  railway  charges,  388.  The 
courts  may  prevent  carriers  from  making  unreasonably  high 
charges,  391.  Injunctions  against  raising  rates,  391.  Injunc- 
tions to  prevent  rate  wars,  392.  Injunctions  against  secret 
rebates,  395.  Injunctions  in  labor  disputes,  396.  The  general 
law  regarding  strikes,  396.  Injunctions  to  protect  property 
and  personal  rights,  397.  Injunctions  compelling  railway 
employees  to  work,  397.  Injunctions  to  prevent  interference 
with  interstate  commerce  and  the  mails,  399.    The  Chicago 


XIV  AMERICAN  RAILWAY   TRANSPORTATION 

or  Debs  strike  of  1894,  399.  Railway  receiverships — Defini- 
tion and  description,  401.  Extent  to  which  railways  are 
managed  by  the  courts,  403.  Causes  of  railway  insolvency, 
403.  Not  all  causes  of  railway  insolvency  have  been  elimi- 
nated, 404.  Objections  to  the  present  system  of  railway 
receiverships,  405.  Changes  suggested  in  the  present  law  of 
receiverships,  406.     References  for  further  reading,  407. 

CHAPTER  XXVIII  pages 

Eailway  Taxation 408-419 

Railway  companies  were  taxed  lightly  at  first,  408.  Local 
character  of  early  railroad  taxation,  408.  The  modifications 
of  the  general  property  tax,  409.  The  property  tax  on  rail- 
ways, 409.  Taxes  on  capitalization,  411.  Taxes  on  receipts, 
411.  Franchise  taxes,  41o,  The  interstate  prorating  of  rail- 
way taxes,  414.  "  Double  "  taxation,  415.  Taxation  among 
the  States  is  not  uniform,  416.  Federal  taxation,  417. 
Amount  of  taxes  paid  by  the  railroad  companies,  417.  Sum- 
mary of  the  general  tendencies  in  railway  taxation,  418.  Ref- 
erences for  further  reading,  419. 

CHAPTER  XXIX 

The  Problem  of  Government  Eegulation  .  .  420-427 
The  problem  of  government  regulation  of  railways  a  perma- 
nent one,  420.  The  two  parts  to  the  problem,  420.  Effects  of 
policy  of  prohibiting  railway  cooperation,  421.  The  present 
obligation  of  the  Government  to  maintain  equitable  relations 
between  the  carriers  and  the  public,  422.  Railway  regulation 
and  "  trust "  regulation  are  being  merged  to  some  extent,  422. 
The  Elkins  law  of  February  17,  1903,  423.  Acts  of  February 
11,  1893,  March  2,  1893,  and  March  3,  1901,  425.  The  deci- 
sions of  the  courts,  have  done  more  than  legislation  to  change 
the  interstate  commerce  law,  426.  The  necessity  for  further 
legislation,  426.  Public  interest  in  railway  regulation  has 
been  temporarily  lessened  by  business  prosperity,  426.  The 
commission  system  of  regulation  is  preferable  to  Government 
ownership  for  the  United  States,  427. 

Index 429 


LIST   OF  ILLUSTKATIONS  AND   MAPS 


ILLUSTRATIONS 

PAGE 

The  stage-coach  used  before  the  introduction  of  the  railway    .        .  15 

The  Conestoga  wagon,  the  predecessor  of  the  freight-car ...  15 

The  Rocket,  1829 20 

Advertisement  illustrating  the  transportation  sei'vice  in  1835  .        .  30 

Advertisement  showing  the  transportation  service  of  1837        .        .  31 

Railway  track  with  wooden  stringers  surfaced  with  straps  of  iron  .  34 

Track  of  granite  sills  plated  with  straps  of  iron         ....  35 

Track  of  cast-iron  rails  resting  on  granite  blocks      ....  35 

Rolled-iron  U-rail,  1844 37 

Peter  Cooper's  locomotive,  1830 39 

The  Old  Ironsides,  1832 40 

De  Witt  Clinton  engine  and  train,  1831 41 

John  Bull  engine  and  train,  1831        .......  42 

Lancaster  engine  and  train,  run  on  Pennsylvania  State  Railroad, 

1834 42 

First  Campbell  locomotive,  1836 43 

The  mogul  compound  freight-engine  ....        ...  44 

Consolidation  freight-engine 45 

Decapod  freight-engine 45 

A  high-speed  compound  passenger-engine 46 

Passenger-coach,  1835.     Used  on  Pennsylvania  Portage  Railroad    .  47 

An  early  passenger-coach  with  trucks 47 

Diagram  of  railway  capitalization,  dividends,  and  funded   debt, 

1890-1900 83 

XV 


xvi  AMERICAN  RAILWAY  TRANSPORTATION 

PAGK 

Diagram  of  American  railway  earnings,  1890-1900   ....  103 

The  freight  bill 120 

The  freight  bill,  notice  of  arrival 121 

Sample  bill  of  lading 122 

Sample  card  way-bill 123 

Sample  interline  way-bill 125 

Chart  showing  organization  of  the  Erie  Railroad  in  1900 .      facing  190 


MAPS 

Canals  and  railroads  in  New  York  State  in  1840       .        ,        ,        ,  17 

Canals  and  railroads  in  Pennsylvania  in  1840 19 

The  railways  in  the  United  States  in  1850         .        .        .      facing  24 

The  railways  in  the  United  States  in  1870         .        .        .      facing  26 

The  railways  in  the  United  States  in  1880         .        .        .      facing  28 

The  railways  in  the  United  States  in  1890         .        .        .      facing  30 

The  Vanderbilt  System 53 

The  Pennsylvania  System 55 

The  Gould  System 57 

The  Harriman  System 59 

The  Hill  System 61 

The  grouping  of  railways  adopted  by  the   Interstate   Commerce 

Commission 85 

The  location  of  the  dense  mail  routes         ....      facing  174 

States  having  advisory  and  mandatory  commissions         .        ,        .  360 


AMERICAN  RAILWAY  TRANSPORTATION 


CHAPTER    I 

INTRODUCTION DEFINITION    AND    SCOPE    OF    TRANSPORTATION 

Transportation  has  to  do  with  travel,  traffic,  and  com- 
munication; it  is  concerned  with  the  movement  of  persons 
and  things,  and  with  the  transmission  of  ideas.  The  term 
is  applied  both  to  the  instruments  by  which  movement  is 
accomplished  and  to  the  service  performed  by  those  agen- 
cies. The  several  instrumentalities — waterways,  high- 
ways, railroads  and  the  vehicles  used  upon  them,  the  tele- 
graph and  telephone — are  spoken  of  collectively  as  the 
transportation  system.  In  the  study  of  transportation 
attention  may  be  directed  either  to  the  system  or  to  the 
service. 

The  system  is  the  machine  that  performs  the  service, 
and  a  study  of  it  is  a  technical  one,  covering  the 
engineering  problem  connected  with  the  construction, 
maintenance,  and  operation  of  the  means  or  mechanism 
of  transportation,  and  also  including  the  business  prin- 
ciples and  methods  prevailing  in  the  management  of  the 
several  parts  of  the  various  organizations  engaged  in  per- 
forming the  transportation  service.  The  engineering  side 
of  the  technics  of  transportation  is  studied  in  the  civil 
and  mechanical  engineering  schools,  which  give  instruc- 
tion in  the  principles  and  methods  of  building  the  struc- 
tures and  machinery  pertaining  to  each  of  the  several 
3  1 


2  AMERICAN   RAILWAY  TRANSPORTATION 

transportation  agencies — instruction  in  improving  rivers, 
building  canals,  highways,  and  railroads ;  in  designing  and 
constructing  ships,  engines,  locomotives,  and  cars;  and  in 
the  several  branches  of  electrical  engineering.  The  prin- 
ciples and  methods  of  administration,  or  the  business  tech- 
nics, with  the  exception  of  such  as  may  be  included  in 
the  study  of  accounting  and  telegraphy,  are  as  yet  but 
little  taught  in  American  schools.  They  must  be  mas- 
tered in  the  school  of  experience.  In  this  regard  the 
education  facilities  in  the  United  States  are  somewhat 
inferior  to  those  in  some  European  countries. 

In  studying  the  transportation  service,  only  incidental 
regard  need  be  given  either  to  the  agencies  which  per- 
form the  service  or  to  the  technics  of  the  administration 
of  those  agencies.  The  purposes  of  the  study  are  three- 
fold: (1)  To  understand  the  nature  and  scope  of  the 
transportation  service  both  as  a  whole  and  with  such 
detail  as  may  be  necessary  to  an  intelligent  considera- 
tion of  each  of  the  several  branches  of  the  service;  (2) 
to  analyze  the  relations  of  the  companies  and  individuals 
who  perform  the  services  to  the  users  of  the  service — 
the  relations,  actual  and  desirable,  of  the  carriers  and 
the  public;  (3)  to  ascertain  the  degree  and  form  of 
supervision  or  control  that  the  Government  should  exer- 
cise over  the  relations  of  the  carriers  and  the  public. 

In  contrast  with  the  technics  of  transportation,  the 
study  of  the  service  may  be  called  the  economics  of  trans- 
portation— the  study  which  treats  of  the  characteristics 
of  the  transportation  service,  the  business  relations  of  the 
carriers  and  the  public,  and  the  governmental  supervision 
or  control  of  transpprtation.  This  study  comprises  a  part 
of  each  of  two  social  sciences:  political  economy  or  eco- 
nomics and  civics  or  political  science. 

Political  economy,  or  economics,  is  the  science  of  busi- 
ness affairs,  or,  as  it  is  sometimes  defined,  the  science 


DEFINITION  OF  TRANSPORTATION  3 

which  treats  of  the  efforts  of  men  to  satisfy  their  wants. 
Among  the  manifold  instrumentalities  men  have  devised 
to  assist  them  in  the  business  activities  which  they  carry 
on  to  create  the  wealth  whereby  their  wants  are  satisfied, 
transportation  agencies  have  come  to  be  indispensable, 
and  a  study  of  the  services  performed  by  those  agencies 
constitutes  an  important  part  of  the  science  of  business 
affairs.  The  position  of  transportation  economics  in  polit- 
ical economy  can  be  specifically  stated  by  explaining 
briefly  the  relation  of  the  transportation  service  to  the 
production,  consumption,  exchange,  and  distribution  of 
wealth. 

Production  consists  in  making  matter  more  useful  for 
purposes  of  consumption.  It  is  the  creation  of  utilities. 
To  give  matter  the  ability  to  satisfy  wants,  two  things 
must  be  done:  The  commodities  must  be  given  the  form 
or  the  qualities  which  the  user  desires  them  to  possess, 
and  the  articles  must  be  taken  to  the  user.  The  form 
and  intrinsic  qualities  that  make  matter  useful  result 
from  agriculture,  manufacture,  and  the  various  industries 
by  which  things  are  grown  and  shaped.  The  transporta- 
tion service  puts  commodities  in  the  place  where  they  can 
^be  used.  An  article  that  has  been  grown,  mined,  or  manu- 
factured has  received  only  a  part  of  the  services  by  which 
it  becomes  useful.  Only  the  intrinsic  utilities  of  form 
or  quality  have  been  created;  the  usefulness  which  de- 
pends upon  the  location  of  the  article — its  place  utilities 
— has  yet  to  be  given  it.  Place  utilities  are  created  by 
the  transportation  services,  which  are  thus  a  part  of  the 
general  process  of  production. 

The  relation  of  transportation  to  production  may  also 
be  shown  by  considering  the  general  effect  which  improve- 
ments in  transportation  services  have  h?.d  on  the  use  or 
consumption  of  wealth.  Men  produce  commodities,  be- 
cause they  want  the  commodities,  because  they  wish  to 


4:  AMERICAN  RAILWAY  TRANSPORTATION 

hoard  up,  or  use — i.  e.,  "consume" — them;  accordingly, 
what  men  produce  depends  upon  the  kinds,  number,  and 
intensity  of  their  wants.  From  this  it  follows  that  any 
force  or  influence  that  changes  men's  wants  will  also  affect 
their  productiA^e  activities.  This  truth  is  illustrated  by 
the  fact  that  the  uncivilized  man  will  do  but  little  work, 
because  he  wants  but  a  few  things.  The  only  way  to 
make  him  work  is  to  create  wants  in  him. 

The  causes  which  modify  the  wants  of  men,  and  thus 
change  what  they  produce  and  consume,  are  many,  but 
nothing  will  do  more  to  create  new  wants  or  more  intense 
ones  than  a  decrease  in  the  cost  and  an  increase  in  the 
quantity  and  variety  of  consumable  commodities.  The 
availability  of  commodities  has  been  multiplied  many 
times  by  improvements  in  transportation,  and  the  effect 
of  this  upon  human  wants  has  unquestionably  been  great. 
Indeed,  with  our  present  facilities  of  transportation,  there 
is"  practically  no  limit  to  the  number  of  wants  we  can 
satisfy,  and  our  rapidly  increasing  demands  have  spurred 
us  on  to  an  ever-widening  range  of  production. 

Commerce  consists  in  exchange  of  commodities  be- 
tween separated  localities — it  is  the  agency  by  means  of 
which  the  consumer  and  producer  are  brought  together. 
The  process  involves  a  sale  and  purchase  of  goods,  their 
transmission  from  the  seller  to  the  buyer,  and  the 
settlement  of  business  accounts.  Transportation  is  one 
of  the  mechanisms  through  which  this  is  accomplished. 
Among  the  other  agencies  of  commerce  are  the  stock  ex- 
changes, the  bourses,  the  markets,  the  banks,  the  trust 
companies,  and  insurance  companies;  but  of  these  several 
auxiliaries  the  transportation  service  is  the  least  dispen- 
sable. With  the  growing  subdivision  and  specialization 
in  productive  effort,  with  the  continually  increasing  tend-' 
ency  to  locate  industries  where  they  can  be  carried  on 
most  economically,  with  the  constant  extension  of  the^ 


DEFINITION  OF  TRANSPORTATION  5 

areas  from  which  the  materials  of  industry  are  drawn 
and  over  which  the  products  are  marketed,  commerce,  and 
particularly  that  part  of  commerce  which  is  concerned 
with  the  movement  of  persons  and  things,  becomes  of 
ever  greater  consequence  in  all  productive  enterprises. 
The  production  of  wealth  has  been  greatly  enhanced  by 
the  enlargement  of  commerce,  and  the  extension  of  com- 
merce has  been  possible  mainly  because  of  the  improve- 
ments that  have  been  made  in  the  agencies  by  which  the 
various  transportation  services  are  performed. 

The  relation  of  transportation  to  the  distribution  of 
wealth  is  somewhat  complex.  Wealth  is  the  creation  or 
product  of  three  factors:  land  or  the  resources  of  nature, 
capital,  and  human  effort,  physical  and  mental.  ^N^ature 
is  the  source  of  wealth,  capital  is  the  tool,  and  man  is 
the  agent  by  which  the  source  is  drawn  upon.  The 
income  which  men  derive  from  the  possession  of  natural 
agencies  and  resources  is  called  rent,  that  secured  from 
the  ownership  of  capital  is  termed  interest,  that  obtained 
from  effort  is  named  wages.  The  income  or  rent  received 
by  the  owner  of  "  land  "  depends  upon  two  things :  the 
productivity  or  intrinsic  characteristics  of  the  land  or 
natural  resource,  and  its  location.  The  rent  which  owners 
of  agricultural  land  can  command  depends  upon  its  fer- 
tility and  its  location  with  reference  to  markets;  rents 
from  mines  and  forests  are  determined  by  productivity 
and  location;  rents  on  building  sites  result  mainly  from 
location.  As  far  as  rent  depends  upon  location,  the  de- 
termining factor  is  transportation,  and  every  improve- 
ment or  change  in  the  facilities  or  costs  of  transportation 
services  must  have  an  influence  upon  the  total  amount 
of  "  rent "  received  by  the  owners  of  natural  agents  and 
must  readjust  the  distribution  of  that  form  of  income 
among  its  recipients. 

The    relation    of   the    transportation    service    to    the 


6  AMERICAN  RAILWAY  TRANSPORTATION 

income  from  capital  is  twofold;  the  total  income  from 
capital  has  been  greatly  increased  by  the  modern  trans- 
portation facilities,  but  the  rate  of  return  has  been  low- 
ered. Capital  is  so  generally  and  extensively  employed 
in  production  to-day,  as  the  result  of  improved  transpor- 
tation, the  use  of  machinery,  and  other  well-known 
causes,  that  we  have  come  to  speak  of  modern  productive 
processes  as  capitalistic  in  contrast  with  those  of  a  hun- 
dred years  ago,  when  most  things  were  done  by  manual 
labor  and  when  land  and  labor  received  nearly  all  of  the 
income  from  production.  But  the  accumulation  of 
wealth  has  been  so  rapid  as  to  make  capital  abundant 
and  to  cause  the  rate  of  interest  to  decline  rather  than 
rise.  This  fall  in  the  rate  of  interest,  however,  has  beeii 
slower  than  it  would  have  been  had  not  the  opportunities 
for  investment  been  greatly  multiplied  by  the  extension 
and  improvement  of  the  means  of  transportation. 

By  wages,  the  income  resulting  from  human  effort, 
is  popularly  meant  the  money  payment  received  by  those 
who  toil  with  hand  or  brain;  but  in  scientific  discussion 
the  word  more  frequently  means  the  amount  of  useful 
commodities  received  by  the  workers.  The  "  real  "  wages 
of  a  day's  labor  are  the  commodities  which  a  day's  labor 
will  secure.  Possibly  transportation  has  had  no  more 
marked  effect  than  that  of  inc:^easing  the  quantity  and 
variety  of  useful  things  which  come  within  the  range  of • 
the  toiler's  income.  The  luxuries  of  past  generations 
have  now  become  necessities,  because  of  the  reductions  in 
the  costs  of  production  effected  by  improved  transporta- 
tion and  other  forces.  Furthermore,  as  the  laborer's 
real  wages  have  increased,  his  efficiency  has  become 
greater  and  his  impulses  to  effort  have  been  strength- 
ened. To  have  is  to  want  more,  to  strive  harder.  We 
call  this  raising  the  standard  of  living,  the  progress  of 
civilization. 


DEFINITION  OF  TRANSPORTATION  7 

As  the  result  of  cheap  transportation,  those  who  pro- 
duce have  multiplied  their  wants  and  their  efforts;  and 
with  the  present  highly  developed  transportation  service 
to  aid  them,  their  efforts  are  far  more  productive 
than  they  would  otherwise  be.  Human  effort  creates 
enormously  more  wealth  than  was  formerly  possible. 
Whether,  in  the  distribution  of  wealth  among  the  classes 
who  control  or  contribute  to  the  forces  of  production, 
labor  or  human  effort  receives  an  adequate  share  of  the 
total,  is  a  question  concerning  which  there  are  differences 
of  opinion.  The  absolute  income  of  labor  is  greater  than 
it  was  when  cruder  processes  of  production  prevailed, 
and  that  income  continues  to  increase;  but  it  is  by  no 
means  certain  that  the  forces  controlling  the  distribution 
give  labor  an  equitable  share. 

The  relation  of  the  government,  local.  State,  and 
Federal,  to  transportation  is  such  an  intimate  one  that 
a  study  of  the  transportation  service  necessarily  involves 
a  consideration  of  some  duties  and  activities  of  the  state, 
subjects  covered  by  the  study  of  government  or  political 
science.  Indeed,  some  branches  of  transportation,  as  the 
niail  service,  are  everywhere  carried  on  by  the  govern- 
ment. The  city  streets  and  most  country  roads  are  high- 
ways maintained  at  public  expense;  and  the  commercially 
important  lakes,  streams,  and  harbors  are  usually  im- 
proved and  maintained  wholly  or  partially  by  the  use  of 
public  funds.  Canals  are  sometimes  private  enterprises, 
but  more  often  are  state  works.  Street-railways,  espe- 
cially in  Europe,  are  frequently  owned  by  the  cities,  and 
sometimes  are  operated  by  them.  In  many  countries  the 
steam-railroads  are  owned  and  managed  by  the  govern- 
ment, and  in  all  countries  where  private  ownership  pre- 
vails the  railroad  service  is  subject  to  government  regula- 
tion. The  telephone  service  has  thus  far  usually  been 
conducted  by  private  companies. 


8  AMERICAN  RAILWAY  TRANSPORTATION 

Whether  performed  by  the  government,  or  by  com- 
panies, or  by  individuals,  the  transportation  service  is  of 
a  public  nature.  This  is  a  well-established  principle  of 
law,  the  Supreme  Court  of  the  United  States  having  held 
that  "  the  business  of  a  public  carrier  is  of  a  public 
nature,  and  in  performing  it  the  carrier  is  also  perform- 
ing to  a  certain  extent  a  function  of  government  which 
requires  him  to  perform  the  service  upon  equal  terms  to 
all."  The  principle  applies  as  much  to  railroads  built 
and  operated  by  corporations  as  to  other  transportation 
agencies.  "  Whether  the  use  of  a  railroad  is  a  private 
one  depends  in  no  measure  upon  the  question  who  con- 
structed it  or  who  owns  it.  It  has  never  been  considered 
a  matter  of  any  importance  that  the  road  was  built  by 
the  agency  of  a  private  corporation.  No  matter  who  is 
the  agent,  the  function  performed  is  that  of  the  state. 
Though  the  ownership  is  private,  the  use  is  public."  ^ 

The  general  basis  of  this  principle  is  the  vital  de- 
pendence of  the  social  organization  upon  transportation. 
A  service  must  be  of  a  public  nature  that  is  essential  to 
orderly  human  relations,  to  all  industrial  activities,  and 
the  progress  and  welfare  of  society.  The  public  nature 
of  the  transportation  services  of  railroads  and  some  other 
carriers  is  recognized  by  the  state  in  the  granting  of 
franchises  giving  to  such  carriers  the  power  to  take  pos- 
session of  the  private  property  they  may  need.  "  The 
state,"  to  quote  the  language  of  the  United  States  Su- 
preme Court,  "  would  have  no  power  to  grant  the  right 
of  appropriation  unless  the  use  to  which  the  land  was  to 
be  put  was  a  public  one.  Taking  land  for  railroad  pur- 
poses is  a  taking  for  a  public  purpose,  and  the  fact  that 
it  is  taken  for  a  public  purpose  is  the  sole  justification 
for  taking  it  at  all."  ^ 

1  Olcott  vs.  The  Supervisors,  16  Wallace,  695. 

^  United  States  vs.  Joint  Traffic  Association  et  al.,  171  U.  S.,  505. 


DEFINITION  OF  TRANSPORTATION  9 

In  studying  the  transportation  service,  then,  we  are 
dealing  with  one  of  the  functions  of  government,  and 
one  of  the  important  branches  of  political  science.  In 
considering  this  service  the  student  is  concerned  with 
the  government  at  work  either  performing  the  service 
directly  or  insuring  its  proper  performance  by  persons 
and  corporations  receiving  from  the  state  their  authority 
to  act,  and  subject  in  their  actions  to  the  regulative  con- 
trol of  the  government.  The  problems  of  the  Govern- 
ment ownership,  operation,  and  regulation  of  the  agencies 
of  transportation  require  the  investigator  to  inquire  into 
some  most  interesting  questions  regarding  the  functions 
of  government  and  the  proper  scope  of  its  activities. 

This  volume  is  concerned  with  the  transportation 
service  performed  by  steam  or  trunk-line  railroads.  It 
does  not  discuss  the  engineering  and  other  technical  ques- 
tions of  railroad  construction  and  operation,  but  describes 
the  American  railroad  system,  gives  an  account  of  the 
service  performed  by  the  different  branches  of  the  rail- 
road organization,  considers  the  business  relations  of  the 
railroads  and  the  public,  and  discusses  the  problems  of 
government  regulation.  The  book  is  a  study  in  railway 
economics,  and  is  intended  to  be  an  introduction  to  the 
general  subject  of  railroad  transportation,  a  volume  that 
may  profitably  precede  or  accompany  a  more  special  study 
of  a  particular  branch  of  the  railway  service. 


PART  I 
THE  AMEEICAN  RAILWAY  SYSTEM 


CHAPTEK   II 

ORIGIN    OF    THE    AMERICAN    RAILWAY 

Until  the  fourth  decade  of  the  nineteenth  century 
the  inland  highways  of  travel  and  trade  were  wagon 
roads,  rivers,  and  canals.  As  compared  with  Europe  the 
United  States  was  poorly  equipped  with  these  means  of 
transportation,  because  the  newness  of  the  country,  the 
sparseness  of  population,  and  the  undeveloped  state  of 
our  industries  had  kept  both  the  government  and  individ- 
uals from  devoting  to  the  building  of  roads  and  water- 
ways the  meager  volume  of  capital  available  for  invest- 
ment. In  the  construction  of  railroads  the  United  States 
was  preceded  only  by  Great  Britain,  but  in  the  building 
of  highways  and  waterways  our  country  was  led  by  sev- 
eral European  countries,  and  is  even  now  behind  them 
in  that  regard. 

Until  near  the  end  of  the  eighteenth  century  the 
country  roads  constructed  in  America  were  built  and 
maintained  by  the  local  governments — that  is,  by  the 
towns  in  New  England,  the  townships  in  the  Middle  At- 
lantic section,  and  the  counties  in  the  south.  With  the 
growth  of  population  and  business  these  highways  became 
so  inadequate  that  corporations  of  individuals  began  the 
construction  of  roads  and  charged  tolls  for  their  use. 
These  roads  were  called  turnpikes,  because  at  the  places 
where  tolls  were  collected  there  was  placed  across  the 
road  a  gate  consisting  of  a  pole  armed  with  pikes  and  so 
hung  as  to  turn  upon  a  post. 

13 


14  AMERICAN  RAILWAY  TRANSPORTATION 

The  construction  of  toll  roads  began  soon  after  1790, 
and  numerous  turnpike  companies  were  chartered  by  each 
State,  particularly  by  the  Middle  and  New  England  States. 
The  greatest  mileage  was  built  in  Pennsylvania,  and 
what  w^as  done  in  that  State  is  typical  of  what  occurred 
in  many  other  parts  of  the  country.  In  1790  a  com- 
pany was  chartered  to  build  a  turnpike  from  Philadel- 
phia to  Lancaster,  and  this  road,  begun  in  1792,  was 
completed  in  1794.  Later  this  road  became  a  part  of  a 
continuous  line  of  turnpikes  extending  from  Trenton  to 
Steubenville,  on  the  Ohio  River,  a  distance  of  343  miles. 
Before  the  construction  of  railroads  began  in  this  coun- 
try, 102  Pennsylvania  companies  had  built  2,380  miles 
of  roads  in  that  State  at  a  cost  of  nearly  $8,500,000. 
Although  these  toll  roads  did  not,  as  a  rule,  prove  to  be 
very  profitable  to  the  companies  which  built  them,  they 
were  of  great  benefit  to  the  people  of  the  State.  Some 
of  these  turnpikes  are  still  operated  as  toll  roads,  although 
most  of  them  have  very  properly  become  free  public 
highways. 

Some  turnpike  roads  were  built  with  funds  donated 
by  the  States  and  the  Federal  Government  at  the  time 
when  public  aid  was  being  given  to  works  of  "  internal 
improvement.''  The  most  celebrated  turnpike  was  the 
Cumberland  Road,  or  the  "  I^ational  Pike,''  constructed 
by  the  United  States.  It  was  begun  in  1806,  and  was 
built  westward  from  Cumberland,  Md.,  through  Wheel- 
ing and  Columbus,  and  finally,  twenty-one  years  later, 
after  having  been  extende"d  from  time  to  time,  it  reached 
Yandalia,  in  central  Illinois.  It  was  to  have  gone  through 
to  Jefferson  City,  Mo.,  but  before  Illinois  had  been  passed 
the  superiority  of  the  railroad  for  long-distance  traffic 
had  become  an  accepted  fact. 

Surveys  of  canal  routes  were  made  in  Pennsylvania 
as  early  as  1762.     In  1772  General  Washington  called 


ORIGIN  OF  THE  AMERICAN  RAILWAY 


15 


attention  to  the  importance  of  constructing  canals  and 
improving  tlie  rivers  of  the  country.  He  was  particu- 
larly desirous  that  the  Atlantic  coast  section  should  be 
connected  by  a  through  route  with  the  region  west  of 
the  Alleghany  Mountains.     It  was,  however,  not  until 


The    Stage-Coach,    generally    used   for    Passenger    Travel   before    the 
Introduction  of  the  Railroad. 


1825,  twenty-six  years  after  the  death  of  Washington, 
that  this  was  accomplished  by  the  completion  of  the  Erie 
Canal,  connecting  the  Hudson  River  and  Lake  Erie.  Al- 
though numerous  companies  were  chartered  during  the 
decade  ending  in  1812,  little  was  done  to  improve  inland 


The   Conestooa   Wagon,   the    Predecessor    of   the    Freight-Car    in   the 
Middle  Atlantic  States. 

navigation  until  after  the  War  of  1812  to  1815,  when 
several  corporations  began  energetically  the  work  of  con- 
necting the  anthracite  coal-fields  with  tide-water  by 
means  of  canals  and  canalized  rivers.     The  States  aided 


16  AMERICAN  RAILWAY  TRANSPORTATION 

these  and  other  navigation  companies,  and  attention  was 
directed,  especially  by  New  York,  Pennsylvania,  and 
Maryland,  to  the  project  of  securing  routes  to  the  West. 
In  this  New  York  was  the  first  to  succeed  by  means  of 
the  Erie  Canal,  which  was  begun  in  1817  and  finished 
in  1825.  The  transportation  system  of  canals  and  rail- 
roads in  the  States  of  New  York  and  Pennsylvania  in 
1840  is  shown  by  the  accompanying  charts,  giving  data 
taken  from  Tanner's  maps  of  that  date. 

The  opening  of  the  Erie  Canal  roused  Pennsylvania 
to  action,  and  in  1826  she  began  her  system  of  "  public 
works,"  the  main  feature  of  which  was  a  composite  rail 
and  water  route,  completed  in  1834,  connecting  Phila- 
delphia with  Pittsburg.  A  railroad  ran  from  Philadel- 
phia to  the  Susquehanna  Piver  at  Columbia,  then  a  canal 
extended  up  the  Susquehanna  and  Juniata  Rivers  to  Hol- 
lidaysburg.  Between  Hollidaysburg  and  Johnstown  the 
canal-barges  were  carried  over  the  mountains  to  a  port- 
age railroad;  a  canal  connected  Johnstown  and  Pittsburg, 
at  which  point  junction  was  made  with  the  Ohio  River 
steamboats. 

A  corporation  aided  by  the  States  of  Maryland  and 
Virginia  began  to  construct  the  Chesapeake  and  Ohio 
Canal  in  the  Valley  of  the  Potomac  at  the  same  time  that 
Pennsylvania  undertook  her  public  works,  but  it  was 
1850  when  the  Chesapeake  and  Ohio  Canal  reached  Cum- 
berland. Between  1830  and  1850  Ohio,  Indiana,  Illi- 
nois, and  numerous  other  States  constructed  canals  or 
aided  corporations  to  build  them,  but  the  railroad  had 
made  its  appearance  and  had  begun  to  make  the  further 
construction  of  small  barge  canals  inadvisable.  Canal 
building  rapidly  fell  ofF  after  1840.  The  panic  of  1837 
so  crippled  the  financial  resources  of  the  States  that  they 
were  temporarily  left  without  surplus  funds  to  invest 
in  internal  improvements;  at  the  same  time  the  railroads 


1$  AMERICAN  RAILWAY  TRANSPORTATTON 

were  being  extended  rapidly  and  were  taking  the  traffic 
that  had  previously  moved  by  water.  The  use  of  rivers 
and  canals  did  not  stop  with  the  spread  of  the  railway 
system,  nor  have  we  yet  ceased  to  find  the  inland  water- 
ways serviceable;  but  at  the  present  time  only  the  large 
lakes  and  rivers  and  the  most  important  canals  are  able 
to  hold  their  traffic  in  competition  with  the  railroads. 

The  railroad  at  the  beginning  was  an  improved  tram- 
way equipped  with'  a  track  upon  which  locomotives  could 
be  run.  The  distinctive  feature  of  the  railroad  was  the 
substitution  of  mechanical  for  animal  traction  (the  use 
of  steam  instead  of  muscle  as  the  power  by  which  vehicles 
were  moved),  and,  although  the  first  locomotives  were 
small  and  crude,  their  use  as  an  agent  of  transportation 
marks  one  of  the  greatest  advances  the  world  has  ever 
made.  Mechanical  traction  freed  society  from  the  nar- 
row limitations  which  muscular  force  placed  upon  human 
development,  and  gave  man  possession  of  an  agency  capa- 
ble of  indefinite  improvement. 

The  construction  of  tramways  for  cars  drawn  by 
horses  was  a  comparatively  simple  task,  and,  from  1801 
on,  tramway  companies  were  frequently  chartered  in 
England.  The  tracks  were  used  mainly  for  hauling  min- 
erals. The  Quincy  tramway,  the  first  road  of  its  kind 
in  America — built  in  Massachusetts  in  1826  and  some- 
times wrongly  called  the  first  railroad  in  America — was 
used  to  transport  the  building-stone  of  which  Bunker 
Hill  monument  was  erected.  It  was  only  three  miles  in 
length,  and  extended  from  the  Quincy  quarries  to  a  wharf 
on  the  E'eponset  River.  K'ear  the  quarry  there  was  a 
steep  incline,  up  and  down  which  the  cars  were  handled 
by  a  stationary  engine;  for  the  remainder  of  the  distance 
horses  were  used. 

The  rails  used  on  the  tramways  and  on  most  of  the 
early  railroads  of  America  consisted  of  wooden  beams 


20 


AMERICAN  RAILWAY  TRANSPORTATION 


with  a  strap  of  iron  nailed  to  the  upper  surface,  the  rails 
being  very  similar  to  those  most  frequently  used  for 
street-railways  until  horse-cars  were  displaced  by  the 
heavier  electric  cars  run  at  a  higher  rate  of  speed. 


The  Rocket,  1829. 


The  successful  locomotive  dates  from  1829,  at  which 
time  the  celebrated  English  engineer  Stephenson  brought 
out  the  Rocket.  The  stationary  engine  had  been  intro- 
duced by  Watt  fifty  years  before  that  time,  but  it  was 
Stephenson  who  first  incorporated  in  the  engine  the  two 
features  essential  to  a  workable  locomotive.  One  of 
these  two  features  was  the  multitubular  boiler,  by  which 
the  heating  surface  is  greatly  increased.  Stephenson  was 
not  the  inventor  of  this,  but  was  the  first  to  make  prac- 
tical use  of  the  invention.  The  other  feature  was  the 
exhaust  draft,  the  device  whereby  the  exhaust  steam  from 
the  cylinder  created  a  stronger  draft  through  the  fire- 
box and  the  tubes  of  the  boiler.    By  combining  these  two 


ORIGIN  OF  THE  AMERICAN  RAILWAY  21 

principles  in  the  Rocket,  Stephenson  became  the  "  father 
of  the  locomotive.'^  At  the  trial  test,  in  October,  1829, 
on  the  Liverpool  and  Manchester  Railroad,  the  Rocket 
attained  a  speed  of  29  miles  an  hour  and  the  practicability 
of  mechanical  traction  became  a  demonstrated  fact.  The 
day  of  doubtful  experiment  was  past,  the  tramway  be- 
came the  railroad. 

The  first  railroad  in  England,  the  line  between  Liver- 
pool and  Manchester,  was  begun  in  1826 — three  years 
before  the  success  of  the  locomotive  was  assured.  At 
Mauch  Chunk,  Pa.,  in  1827,  and  between  Carbondale  and 
Honesdale,  in  the  same  State,  in  1826,  two  coal  compa- 
nies had  opened  roads  for  the  transportation  of  their 
coal  from  the  mines  to  their  canals.  These  mountain 
roads  were  built  for  private  use,  and  the  cars  were 
operated  by  the  force  of  gravity  and  by  means  of  station- 
ary engines.  They  were  not  railroads  in  the  present 
meaning  of  the  term.  The  pioneer  American  railroad 
built  for  general  public  use  was  the  Baltimore  and  Ohio. 
The  company  was  chartered  in  1827  and  construction 
was  begun  in  1828,  but  not  on  a  large  scale,  there  being 
only  13  miles  open  for  traffic  in  1830.  Five  years  later 
the  length  of  the  road  was  135  miles.  The  first  rail  of 
this  historic  road  was  laid  on  July  4,  1828,  by  Charles 
Carroll,  the  only  living  signer  of  the  Declaration  of  Inde- 
pendence. As  Professor  Hadley,  writing  in  1885,  stated: 
"  One  man's  life  formed  the  connecting  link  between  the 
political  revolution  of  the  last  century  and  the  industrial 
revolution  of  the  present." 

The  construction  of  numerous  other  roads  was  begun 
shortly  after  work  commenced  on  the  Baltimore  and 
Ohio.  A  South  Carolina  road,  the  Charleston  and  Ham- 
burg, was  chartered  in  1829,  and  in  1834  it  had  137  miles 
in  operation.  For  a  short  time  it  was  the  longest  line  in 
the  world  under  one  management.     The  parent  company 


22  AMERICAN  RAILWAY  TRANSPORTATION 

of  the  New  York  Central  system,  the  Mohawk  and  Hud- 
son, was  chartered  as  early  as  1826,  and  began  construc- 
tion in  1830.  The  line  from  Albany  to  Schenectady,  17 
miles,  was  opened  in  1831.  Five  years  later  Albany 
and  Utica  had  been  connected  by  rail.  In  1842  Buffalo 
was  reached,  and  by  that  time  lines  had  been  built  from 
New  York  and  Boston  to  Albany,  so  that  the  East  and 
the  West  of  that  period  had  been  joined  by  easy  commu- 
nication by  way  of  the  railroads  and  the  Great  Lakes. 

Between  1830  and  1835  railroad  building  was  pushed 
more  rapidly  in  Pennsylvania  than  in  any  other  State, 
200  miles  being  opened.  The  first  division  of  the  pres- 
ent Pennsylvania  Railroad  system  was  the  Columbia  Rail- 
road, by  which  Philadelphia  was  connected  with  Colum- 
bia, on  the  Susquehanna  River,  in  1834.  The  road  was 
built  by  the  State,  its  construction  having  been  author- 
ized in  1828.  This  railroad  was  a  link  in  the  through 
route  above  referred  to,  consisting  of  canals  and  rail- 
roads, by  which  the  State  connected  Philadelphia  with  the 
Ohio  River  at  Pittsburg  in  1834.  The  line  to  connect 
Philadelphia  with  New  York,  the  Camden  and  Amboy, 
was  chartered  in  1830  and  completed  in  1837.  The  road 
from  Philadelphia  to  Baltimore,  the  Philadelphia,  Wil- 
mington and  Baltimore,  was  chartered  in  1831  and  fin- 
ished in  1837.  The  Reading  Railroad,  built  mainly  for 
the  transportation  of  coal,  was  chartered  in  1833  and 
opened  for  traffic  five  years  later. 

In  Massachusetts  the  chartering  of  railroad  compa- 
nies began  in  1830,  and  in  1835  three  lines  radiated  from 
Boston.  One  ran  south  to  Providence,  another  north  to 
Lowell,  and  a  third  west  to  Worcester.  This  third  line 
reached  Albany  and  Western  connections  just  at  the  close 
of  1841. 

Americans  began  to  build  locomotives  in  1830,  or 
about  as  soon  as  they  engaged  in  railroad  building.     The 


ORIGIN  OF  THE  AMERICAN  RAILWAY  23 

English  locomotives  were  expensive,  they  could  not  be 
secured  promptly,  and  when  obtained  they  were  not  well 
adapted  to  the  light  rails,  steep  grades,  and  sharp  curves 
of  the  American  tracks.  The  traffic  conditions  caused  the 
engines  and  cars  to  be  built  according  to  designs  different 
from  those  followed  in  Great  Britain,  and  the  differences 
in  equipment  are  quite  as  pronounced  to-day  as  they  were 
at  the  beginning. 

EEFEEENCES    FOR    FUETHEK    EEADING 

Tanner,  H.  S.  A  Description  of  the  Canals  and  Railroads  of  the 
United  States,  comprehending  Notices  of  all  the  Works  of  In- 
ternal Improvement  throughout  the  Several  States.     1840. 

Hadley,  a.  T.     Railroad  Transportation,  chapters  i  and  ii.     1885. 

Adams,  Charles  Francis.  Railroads:  Their  Origin  and  Problems. 
1878.  [The  first  third  of  the  book  gives  the  story  of  the  'Agene- 
sis of  the  railroad  system."] 

Poor,  H.  V.  Manuals  of  the  Railroads  of  the  United  States.  The 
volume  for  the  year  1881  contains  a  sketch  of  the  Rise  and  Prog- 
ress of  Internal  Improvements. 

Tenth  Census  of  the  United  States.  Vol.  iv  contains  a  history  of  the 
canals  of  the  United  States. 


CHAPTEK    III 

GROWTH    OF    THE    AMERICAN    RAILWAY    NET 

The  accompanying  chart  shows  what  the  railway  mile- 
age of  this  country  has  been  at  the  beginning  of  each 
decade  since  the  introduction  of  the  new  means  of  trans- 
portation. In  1830  there  were  but  23  miles  in  use.  Dur- 
ing the  succeeding  ten  years  the  total  mileage  reached 
2,818.  The  account  just  given  of  the  early  history  of 
American  railroads  shows  that  the  roads  constructed  dur- 
ing the  first  ten  years  radiated  from  several  Atlantic 
seaports,  Philadelphia  being  the  most  important  center 
in  1840.^  Xew  York  was  a  larger  city,  but  having  espe- 
cially favorable  facilities  for  water  transportation,  its 
railway  connections  were  developed  somewhat  slower 
than  were  those  of  Philadelphia. 

Chart  showing  Mileage  by  Decades  of  the  Hailways  of  the 
United  States 


1830 

1840 
1850 
1860 
1870 
1880 
1890 
1900 


23 

1^818 
9,021 
30,635 


52,914 


93,296 


163,597 


193.346 


In  the  year  1850  the  length  of  the  railways  in  the 
United  States  reached  9,021  miles.     The  growth  during 

^  Consult  map  of  Pennsylvania's  railroad  net  in  1840. 
24 


GROWTH  OF  THE  AMERICAN  RAILWAY  NET         25 

the  preceding  ten  years  had  not  been  especially  rapid 
outside  of  the  E'ew  England  States.  The  decade  1840 
to  1850  was  not  a  period  of  rapid  industrial  develop- 
ment. The  progress  of  the  country  was  steady,  but  com- 
paratively slow.  Kailroad  building  in  the  Southern 
States  made  little  headway,  and  in  the  Central  West 
only  three  important  lines  were  begun.  In  New  Eng- 
land, where  the  country  was  most  thickly  populated, 
the  progress  was  greater,  so  that  by  1850  nearly  all  the 
present  important  trunk  lines  in  that  section  had  been 
completed. 

The  ten  years  following  1850  were  far  more  impor- 
tant in  railroad  history  than  were  those  of  the  preceding 
decade.  The  increase  between  1850  and  1860  was  from 
9,021  to  30,635  miles.  Several  facts  combined  to  give 
prominence  to  the  years  immediately  following  1850. 
The  Southern  and  Central  Western  States  were  devel- 
oping, and  thereby  creating  a  demand  for  greater  trans- 
portation facilities.  From  the  discovery  of  gold  in  Cali- 
fornia in  1848  until  1857  the  people  of  the  United  States 
enjoyed  highly  prosperous  times.  Business  activity  in  all 
lines  was  keen,  and  railroad  building  shared  with  other 
enterprises  in  the  results  of  prosperity. 

The  year  1850  marks  the  beginning  of  a  rapid  weld- 
ing of  short  connecting  railroads  into  long  lines  under 
a  single  ownership.  The  early  roads  were  short,  largely 
because  the  corporations  of  the  third  and  fourth  decades 
of  the  last  century  could  not  command  the  capital 
needed  to  build  long  roads  or  large  systems.  ]^o  enter- 
prise now  seems  too  great  for  a  private  corporation,  but 
sixty  years  ago  that  was  not  so.  Some  of  the  short 
roads  were  built  with  reference  to  their  being  a  part  of 
a  through  or  general  system,  but  many  were  constructed 
rather  to  connect  local  points.  The  necessity  for  pro- 
viding facilities  for  uninterrupted  travel  and  shipment 


26  AMERICAN  RAILWAY  TRANSPORTATION 

became  so  imperative  that  railway  consolidations  were 
found  to  be  necessary. 

Tlie  'New  York  Central  and  the  Pennsylvania  Rail- 
roads are  good  examples  of  these  consolidations.  Origi- 
nally eleven  companies  owned  and  operated  the  railroads 
composing  the  line  connecting  Albany  and  Buffalo,  and 
in  1850  there  were  seven  distinct  companies  between 
those  two  cities;  but  the  following  year  they  were  united 
under  one  management.  Two  years  later  the  Hudson 
Eiver  Railroad  became  a  part  of  the  Central  system,  and 
by  1858  five  more  lines  were  added  to  this  property. 
Thus  was  built  up  the  powerful  New  York  Central 
system. 

The  Pennsylvania  Railroad  Company,  partly  by  con- 
struction of  roads  and  partly  by  the  purchase  and  lease 
of  State  lines,  established  through  connections  between 
Philadelphia  and  Pittsburg  in  1852.  Since  then  the  sys- 
tem has  been  extended  by  absorbing  other  companies  and 
by  building  new  lines,  until  it  now  comprises  properties 
formerly  owned  by  more  than  200  companies. 

During  the  -decade  following  1850  many  of  the  trunk 
lines  of  the  large  railway  systems  of  the  present  day  were 
completed.  The  Erie  Railroad  joined  l^ew  York  and 
Lake  Erie  in  1851,  and  the  Baltimore  and  Ohio  reached 
the  Ohio  River  the  same  year.  The  construction  of  long 
lines  proceeded  rapidly  in  the  States  east  of  the  Missis- 
sippi River  and  north  of  the  Ohio.  By  1853  it  had  be- 
come possible  to  travel  from  the  Atlantic  seaboard  to 
Chicago  by  rail.  In  the  following  year  the  Chicago  and 
Rock  Island  connected  Chicago  with  the  Mississippi 
River.  Land  grants,  State  subsidies,  and  prosperous  times 
combined  to  foster  the  rapid  spread  of  the  railway  net 
in  the  Middle  West.  This  lasted  until  185Y,  when  the 
good  times  were  interrupted  by  a  panic.  Railroad  build- 
ing was  then  so   seriously   interrupted  that  it  had  not 


GROWTH  OF  THE  AMERICAN  RAILWAY  NET         27 

regained  its  previous  activity  when  the  great  civil  v^ar 
stopped  nearly  all  industrial  progress  for  half  a  decade. 

The  construction  of  railroads  in  Illinois  and  beyond 
the  Mississippi  River  was  greatly  stimulated  by  grants  of 
land  from  the  public  domain.  In  1850  the  first  large 
grant  was  made,  the  Illinois  Central  Railroad  being  the 
recipient,  but  many  other  gifts  of  land  were  made  during 
the  next  few  years.  This  policy  of  giving  lands  to  aid 
in  railroad  construction  was  followed  by  the  United  States 
for  nearly  thirty  years,  and  it  caused  the  railway  lines  in 
the  Central  and  far  Western  States  to  be  built  earlier 
and  more  rapidly  than  they  otherwise  would  have  been. 
The  States  also  made  large  contributions  of  public  funds 
to  induce  corporations  to  construct  railways. 

The  United  States  Government  made  especially  lib- 
eral gifts  to  the  companies  that  undertook  the  great  task 
of  building  roads  across  the  dry  plains  and  high  moun- 
tains to  the  Pacific  coast.  The  first  line  reached  the 
Pacific  in  1869  and  was  constructed  mainly  by  the  Union 
and  Central  Pacific  Railroad  Companies.  The  location 
of  the  road  is  shown  on  the  map  of  the  railways  of  1870. 
These  and  other  Pacific  railroad  companies  received  large 
gifts  of  public  land.  The  companies  that  constructed  the 
first  line  to  the  Pacific  also  obtained  large  loa-ns  from  the 
Government  in  the  form  of  United  States  bonds.  The 
history  and  results  of  the  Government  aid  to  railroads 
are  given  in  Chapter  XXII. 

During  the  decade  1860-'70  the  mileage  of  the  rail- 
ways in  the  United  States  increased  from  30,635  to  52,- 
914,  the  rate  of  growth  being  slow  except  during  the  last 
two  years  of  the  period.  From  1868  to  the  panic  of 
1873  was  a  period  of  intense  speculation  and  of  very  rapid 
railway  construction;  indeed  the  severe  business  crisis  of 
1873  was  largely  the  result  of  building  railways  too  rap- 
idly and  of  overcapitalizing  the  lines  constructed.     Dur- 


28  AMERICAN  RAILWAY  TRANSPORTATION 

ing  these  five  years  28,000  miles  were  added  to  the  rail- 
way net  of  the  country,  while  in  the  five  years  following 
1873  only  11,500  miles  were  built. 

In  1880  there  were  93,296  miles  of  railroad  in  the 
United  States.  In  1890  there  were  163,597;  70,000 
miles  of  railroad  were  built  in  this  country  in  a  single 
decade!  This  marvelous  achievement  is  unparalleled  in 
the  economic  history  of  any  other  country  of  the  world. 
Within  ten  years  the  people  of  the  United  States  built 
as  many  miles  of  railroad  as  the  people  of  the  three  lead- 
ing countries  of  Europe  had  constructed  in  fifty  years. 
The  building  operations  were  carried  on  in  all  sections 
of  the  country,  but  the  largest  increases  were  made  in 
the  States  of  the  central  and  western  portions  of  the 
country,  where  settlers  were  rapidly  taking  possession  of 
the  unoccupied  agricultural  and  grazing  sections  of  the 
vast  public  domain,  and  where  the  mineral  wealth  of  the 
Cordilleras  was  causing  cities  and  States  to  be  established 
on  the  great  Rocky  Mountain  plateau.  Capitalists,  confi- 
dent of  the  growth  of  the  country,  and  assisted  by  gener- 
ous aid  from  the  United  States  and  from  the  local  govern- 
ments and  individuals  of  the  sections  to  be  served,  con- 
structed railroads  for  the  purpose  of  creating  the  traffic 
upon  which  the  earnings  of  the  roads  must  depend.  In 
many  cases  the  railroads  built  during  the  twenty  years 
following  the  civil  war  were  pioneers  entering  unsettled 
regions  beyond  the  Mississippi  and  Missouri  Rivers  and 
opening  the  highways  by  which  immigration  was  -  able 
rapidly  to  occupy  the  prairies  and  mountain  valleys  of  our 
great  West. 

Since  1890  railroad  construction  has  not  been  rapid 
in  this  country,  the  increase  for  the  decade  ending  in 
1900  being  something  less  than  30,000  miles.  It  seems 
that  by  1890  the  most  urgent  needs  for  railways  had  been 
met,  that  the  country  had  been  so  well  covered  with  the 


GROWTH  OF  THE  AMERICAN  RAILWAY  NET  29 

railroad  net  that  only  minor  extensions  were  necessary." 
Moreover,  the  financial  depression  which  began  in  1893 
and  lasted  for  nearly  five  years  compelled  the  railway 
companies  to  practise  rigid  economies  and  caused  them 
toV  extend  their  systems  slowly.  During  the,  five  years 
from  1894  to  1898  inclusive  the  annual  construction 
averaged  less  than  2,000  miles,  the  yearly  increase  being 
only  a  little  more  than  one  per  cent.  With  the  return 
of  prosperous  times  in  1898  the  rate  of  increase  rose 
again,  so  that  there  are  now  being  about  5,000  miles,  or 
more  than  two  per  cent,  added  each  year  to  the  railroad 
net  of  the  United  States. 

The  railway  systems  of  the  United  States  now  com- 
prise over  200,000  miles  of  line.  In  1900,  when  there  were 
193,000  miles  in  the  United  States,  the  railways  of  the 
entire  world  were  490,000  miles  long.  In  other  words, 
two-fifths  of  the  railway  mileage  of  the  world  was  in  the 
United  States.  The  mileage  in  the  United  States  exceed- 
ed that  in  all  Europe  by  ten  per  cent. 

The  Railway  Mileage  of  Europe,  the  United  States,  and  the 
World  in  1900 


Europe 

176,000                                           .                           . 

United. States « 
The  world 

193,000 
490.000 

The  magnitude  of  the  railway  system  of  the  United 
States  is  only  partially  indicated  by  the  figures  as  to 
mileage.  The  par  value  of  the  capital  stocks  and  bonds 
comprising  the  capitalization  or  "  securities  "  of  the  rail- 
roads in  this  country  amounted  to  $11,724,000,000  in 
1900.  !N^ot  all  of  these  securities  had  a  selling  value,  and 
it  is  not  possible  to  say  just  how  much  capital  was  actu- 
ally invested  in  our  railroads  at  that  time.  Poor's  Man- 
ual of  Railroads  for  1900  states  the  cost  of  the  railroads 


30  AMERICAN  RAILWAY  TRANSPORTATION 


» 


ThePenugutva»ta  KaJBKSl  Canats  ^HaiURoflds 


rmfiiliiiTit^ 


T.  BORBIDGE  &  Co's. 

Transportation  and  Commission 

CANJktM  BASIN,  COJmVMBUL 

JSIBBS.      I  I  I  ^ggSSgg  J 

Their  •rrailReinenls  sire  such,  that  theR  can  at  all  linjes  rturlnfirjlbc  BasineM  S^iJDlL. 
forward  Uoods.  Produte.  mid  .tiprrliandlze.  to  and  from  l»hilndelplila,rittsbor«,  WlUiani»» 
port.  Wilksbarre.  and  all  intermediate  plac««  on  the  Pennpylvania  Canal*  and  VaU  noaoa 
With  promptness  and  dc<>tinicta. 

ALL  KINDS  OF 

tltcavd  and  Sold  on  C9mmit»ibn,^and  liberal  adva/ncefmade  if  reymred 

,C0N9TANTLY  OR  UAND  LARGE  SUCfUES  OF 

ANTHRACITS  AZVTD  BITUMtZVOUS  COAIi. 

ALSO. 

4LL  OF  WHICH  THEY  WILL  SELL  LOW  ^OR  CASH  OR  COtJNTRY  PRODCCE.. 

.p«.M«thi.  laii.  ,__» 


An  Advertisement  illustrating  the  Transportation  Service  in  1835. 

in  tlie  United  States  to  have  been  in  excess  of  $10,000,000,- 
000,  and  estimates  the  value  of  all  railroad  assets  in  that 
year  at  about  $12,500,000,000.1     Commenting  on  these 
figures,  the  Report  of  the  Industrial  Commission  says: 
"  Accepting   these    estimates   provisionally,    and    also 

*  An  investigation  recently  made  by  the  Interstate  Commerce  Com- 


GROWTH  OF  THE  AMERICAN  RAILWAY  NET         31 


1 


lOluiai'yyiOy'y 

C3'l=3jc3  C3  t=)  C:3   1=3   C3   C3   t=3    Cr:3  1=3   C=3 


3j'ar  iBiiaiL  ;b(daid  vfiASis  «^sfj)  ^CAWjii  iFA(t?ta:s^s» 

rm  Philadelphia  to  Pittsbarfh, 

TBROUGH  IW  3i  DA¥S: 

^«^I»  BfSTE^^V!  BO^TS,  C^RBVIJTG  THE  OJriTED  STATES'  JtAiAf 

From  PIITHBDRCIH  to  IiOlII$VIIJJ& 


Starts  every  morning,  from  the  corner  of  Broad  &  Race^t> 


In  latgr  ami  spfcnjrd  nijhi  whe.l con.  via  ilic  Lnncaiitr  ami  l/.irrnburf:  Kail  Roods.  arn»injr oi  ihr  but r  ptacr,  ai  4  o  riock,  m 

p.->s««ncrr.  V.1II  i..l.i>  the  l'jrkrl».  «l.if  ll  Iwvc  nil  bo  n  lillril  u|i  in  a  very  inpriior  in»ntnr,  having  btfn  buill  apraUiifoT  iht  a. ■  .>«p».«.Hi. 

■i^  I'auengm,  uAer  lb*  m«i  apynwrtd  modeh.  of  Boau  ii«^  on  ih»  Eiif  Canal,  and  are  DM  surpassed  by  lb* 

Uoais  uwd  U|H>ii  an)  oilifr  Line. 

TW  OoaU  M«  NmwiaM  by  old   nml  r»ii«-rirn«d    Captains,   srvi-ral  of  » hum  have  been  connected  with  the   Line  for  the  vn  laMfMttMfc 
For  spo-d  nnd  coinrnrt,  thii  Line  is  not  ocelled  by  any  ixher  in  the  United  Stales. 

Sbsseiigcrs    fikr  Cincinnati,  Louisville,  Natchez,  Nashville,  St.  l.oui8»  &c* 

•iB  alo^s  be  certain  of  being  loki-ii  on  ~ith..iii  delay,  as  this  Lin»  connects  with  the  Bojis  at  ruisbiirgh,  carrying  iIk  M«d 


OFFICE,  N.   E.  CORNER  <JF  FOJJRTH  AND  CHESNUT  ST. 

I  Sirtel ;  at  the  N.  E.  comer  of  Third  an 
r  Mtfiisr,  Bro.->d  Street 

jt.  B.  ctrMJfaj\rcis,  ^aaa. 


V=.,-K--"  IVk  ll«,  all,  J-l.un,J- 


An  Adveetisement  showing  what  the  Teansportation  Seevicb  was 
IN  1837. 


32  AMERICAN  RAILWAY  TRANSPORTATION 

the  estimate  of  the  total  wealth  of  the  United  States  in 
1900  at  about  $90,000,000,000,  it  appears  that  invest- 
ments ifi  railroad  property  form  from  one-seventh  to  one- 
fifth  of  the  aggregate  capital.  This  is  based  upon  the 
assumption  that  railroad  securities  at  par  represent  the 
value  of  the  property.  Judged  by  market  values  at  the 
present  time,  this  amount  would  be  considerably  in- 
creased, approximating  perhaps  the  estimate  made  by 
Edward  Atkinson  before  the  Cullom  Committee  in  1886, 
that  the  railroads  formed  about  one-fifth  of  the  total 
wealth  of  the  country.  If  we  accept  the  estimate  recently 
made  in  a  foreign  financial  journal  of  the  cost  of  rail- 
road •  property  the  world  over  at  $33,000,000,000,  it 
would  seem  that  the  American  railroads  constitute  more 
than  one-third  of  the  railroad  property  of  the  world."  ^ 

Comparisons  with  the  capital  invested  in  other  forms 
of  business  are  suggestive.  The  capital  stock  and  surplus 
of  all  the  3,732  national  banks  in  the  United  States  in 
1900  equaled  $878,000,000— less  than  one-twelfth  the 
estimated  value  of  the  American  railroads.  The  total 
capital  and  the  surplus  funds  of  all  the  banks — national. 
State,  and  private — and  of  the  loan  and  trust  companies 
in  the  United  States  in  1900  amounted  to  $1,675,000,- 
000,  about  one-sixth  the  value  of  the  railroads.  Indeed, 
with  the  exception  of  agriculture,  there  is  no  single  class 
of  industry  that  equals  the  railroads  in  the  amoimt  of 
invested  capital  and  in  the  value  of  the  annual  business 
done.  Although  it  now  costs  but  a  small  fraction  of 
what  it  once  did  to  transport  persons  and  commodities  a 
given  distance,  the  amount  of  travel  and  traffic  have  so 

mission  would  indicate  that  the  market  value  of  railroad  securities  in 
1900  was  much  less  than  this  sum.     See  p.  84,  Chapter  VII.     The  val- 
ues of  the  assets  and  the  securities  would  not  necessarily  be  the  same, 
but  the  figures  here  given  must  be  taken  only  as  an  estimate. 
»  Vol.  xix,  1902,  pp.  261,  262. 


GROWTH  OF  THE  AMERICAN  RAILWAY  NET         33 

enormously  increased,  the  demand  for  the  service  is  now 
so  many  times  what  it  was  before  the  days  of  the  railroad 
and  other  economical  agencies  for  transportation,  that 
the  capital  employed  in  transportation  is  far  greater  than 
in  the  days  of  the  stage-coach  and  the  towboat.  The 
.cheaper  the  service,  the  greater  its  magnitude  and  the 
larger  the  amount  of  capital  devoted  to  the  performance 
of  the  service. 

EEFERENCES    FOE    FURTHER    READIN"G 

Scribner's  Statistical  Atlas,  Plates  15-17  and  text  page  cvii. 
Hadley,  a.  T.     Railroad  Transpoi-tation. 


CHAPTEE   IV 

THE   MECHANISM   OF   THE   RAILWAY ITS   TECHNICAL    GROWTH 

Although  this  book  is  concerned  with  the  transporta- 
tion service,  with  transportation  economics,  rather  than 
with  the  technical  or  engineering  phases  of  the  subject, 
a  brief  account  of  the  growth  and  present  efficiency  of 
the  mechanism  by  which  the  service  is  now  performed 
will  aid  in  the  presentation  of  the  subjects  considered  in 
this  volume.  The  railway  machine  consists  of  three  parts: 
the  track,  the  locomotive,  and  the  car.     Each  had  crude 


Track  with  Wooden  Stringers,  surfaced  with  Straps  of  Iron. 


beginnings  and  has  reached  the  present  condition  of 
excellence  by  a  long  series  of  improvements.  A  few  only 
of  the  most  important  of  these  improvements  need  be 
referred  to  in  this  chapter. 


34 


THE   MECHANISM   OF  THE  RAILWAY 


35 


At  the  beginning  of  railroad  construction,  tracks  of 
various  designs  were  built,  the  chief  thought  of  the  build- 
ers being  to  secure  a  solid  structure  that  would  not  permit 
the  rails  to  spread.     In  relation  to  the  weight  of  the 


Track  of  Granite  Sills  plated  with  Straps  of  Iron. 

rolling-stock  and  volume  of  traffic  the  track  was  relatively 
heavy  and  expensive.  This  was  particularly  true  in  Eng- 
land and  on  some  American  railroads  begun  before  1835, 


Track  of  Cast-Iron  Rails  resting  on  Granite  Blocks. 

up  to  which  time  American  practise  was  more  influenced 
by  British  methods  than  it  was  subsequently. 

Three  kinds  of  rails  were  used,  the  one  most  employed 
consisting  of  strong  wooden  beams,  surfaced  with  strap 


36  AMERICAN  RAILWAY  TRANSPORTATION 

iron.  The  first  iron  rails  used  were  cast,  and,  because 
they  were  cast  iron,  their  length  did  not  exceed  3^  feet. 
Rolled  rails  were  soon  substituted  for  cast-iron  ones,  and 
the  length  was  increased  to  15  feet.  The  weight  per 
yard  of  these  rolled  rails  sometimes  exceeded  40  pounds. 
Until  1844  the  rolled-iron  rails  used  in  the  United  States 
were  all  imported  from  England. 

The  road-bed  of  the  Columbia  Railroad  from  Phila- 
delphia to  the  Susquehanna  River,  constructed  by  the 
State  of  Pennsylvania  between  1828  and  1834,  illustrates 
in  an  excellent  way  the  various  types  of  construction  fol- 
lowed in  the  early  days  of  railroad  building.  This  was 
a  double-track  road  81.6  miles  in  length,  the  entire 
length  of  single  track  being  163.2  miles.  For  6  miles 
of  this  distance  the  rails  consisted  of  granite  sills  plated 
with  flat  iron  bars.  Sixteen  miles  of  track  had  rails  con- 
sisting of  wooden  string-pieces  plated  with  thin  bars  of 
iron.  These  wooden  string-pieces  were  laid  upon  wooden 
cross-ties,  placed  4  feet  apart  upon  a  secure  foundation 
of  broken  stone.  On  2  miles  of  the  track  rails  made 
of  iron  were  supported  upon  stone  blocks,  the  precaution 
being  taken  against  spreading  of  the  rails  by  placing 
stone  sills  across  the  track  at  intervals  of  15  feet.  The 
remainder  of  the  track  was  constructed  with  iron  rails 
resting  upon  stone  blocks,  wooden  cross-sills  being  used 
at  intervals  of  15  feet.  Throughout  the  entire  length 
of  this  road  there  was  a  horse-path  between  the  rails. 

The  roads  constructed  in  this  manner  were  needlessly 
expensive,  and  because  of  their  rigidity  were  more  de- 
structive to  rolling-stock  than  the  railroad-tracks  are  at 
the  present  time.  American  builders  soon  adopted  the 
kind  of  track  with  which  we  are  now  familiar,  the  rails 
being  placed  upon  wooden  cross-ties,  resting  either 
directly  upon  an  earth  foundation  or  upon  a  thin  ballast 
of  gravel  or  broken  rock. 


THE  MECHANISM  OF  THE  RAILWAY 


37 


Builders  tended  early  to  substitute  iron  for  wooden 
rails,  but  as  late  as  1850  there  were  several  railroads  in 
the  United  States,  particularly  in  the  Southern  States, 
still  having  wooden  rails  surfaced  with  thin  plates  of 
iron.  The  earlier  iron  rails  rolled  were  in  the  shape  of 
an  inverted  U.  The  T-rail  now  universally  employed 
was  not  much  used  during  the  first  twenty  years  of  rail- 


Eolled-Iron  U-rail,  1844. 

road  construction.  The  use  of  steel  instead  of  iron  was 
not  common  until  after  1870,  when  the  cost  of  rolled 
steel  had  become  low  enough  to  permit  of  its  use  in  the 
manufacture  of  rails. 

The  weight  of  the  rail  used  has  been  steadily  increased 
until  at  the  present  time  the  new  rails  being  laid  weigh 
from  85  to  110  pounds  to  the  yard.  One  hundred  pounds 
to  the  yard  has  become  the  standard  upon  most  tracks 
where  traffic  is  heaviest.  For  some  time  past  the  standard 
length  of  rail  has  been  30  feet,  but  at  the  present  time 
some  track  is  being  laid  with  rails  60  feet  in  length. 
A  rail  60  feet  in  length  weighing  100  pounds  to  the 
yard  weighs  exactly  one  ton.  The  use  of  these  heavy 
rails  has  been  made  necessary  by  the  increased  weight 
of  engines  and  cars  and  by  the  increase  in  speed  of 
passenger-trains    and    freight    traffic.      Along    with    the 


38  AMERICAN  RAILWAY  TRANSPORTATION 

improvements  in  the  track,  the  bridges  and  other  struc- 
tures have  been  strengthened  to  meet  the  necessities  of 
modern  transportation  methods,  so  that  in  spite  of  the 
greater  cheapness  of  material  as  compared  with  the  early 
days  of  railway  building,  the  road-bed  of  to-day  is  much 
more  expensive  than  was  that  of  fifty  years  ago.  With 
few  exceptions,  the  early  roads  had  but  a  single  track, 
and,  indeed,  to-day  those  having  a  relatively  small  vol- 
ume of  traffic  have  only  one  track.  As  the  business  over 
a  line  increases  a  second  track  usually  becomes  necessary, 
and  some  roads  find  difficulty  in  handling  their  business 
even  with  four-track  lines. 

The  amount  of  traffic  that  can  be  handled  over  a  rail- 
road has  been  greatly  increased  by  the  use  of  the  tele- 
graph for  despatching  trains,  by  the  adoption  of  electric 
and  other  signals,  and  by  the  possibility  of  running  both 
passenger  and  freight  trains  at  higher  speeds  as  the  result 
not  only  of  having  more  powerful  locomotives,  but  also 
of  having  power-brakes  which  are  operated  from  the 
engines  and  keep  the  train  under  easy  control.  Even  the 
necessity  for  stopping  to  take  on  water  for  the  engine  has 
been  obviated  by  placing  between  the  rails  long,  shallow 
troughs  from  which  the  tank  of  the  "  tender ''  can  be 
filled  while  the  train  is  in  rapid  motion.  The  efforts 
to  economize  in  time  and  cost  of  service  have  been 
directed  quite  as  much  to  the  improvement  of  the  track 
and  road-bed  as  to  the  development  of  the  other  parts 
of  the  mechanism  by  which  transportation  is  accom- 
plished. 

The  Baltimore  and  Ohio  was  the  pioneer  railroad, 
but  the  Charleston  and  Hamburg  road  in  South  Carolina 
was  the  first  one  constructed  solely  with  reference  to  the 
immediate  use  of  steam  traction.  Horses  preceded  loco- 
motives on  the  Baltimore  and  Ohio,  the  Philadelphia 
and  Columbia,  the  Mohawk  and  Hudson,  and  other  early 


THE  MECHANISM  OF  THE  RAILWAY 


39 


lines.  The  first  locomotive  actually  run  upon  an  Amer- 
ican railroad  was  the  Stourbridge  Lion,  imported  from 
England  in  1829  to  be  used  near  Honesdale,  Pa.,  but  'tlic 
engine  proved  too  heavy  for  the  trestles,  and  was  not  put 
into  service. 

Locomotive  building  in  the  United  States  began  in 
1830.      Indeed,    experiments   were    begun    the    previous 


Peter  Cooper's  Locomotive,  1830. 

year  by  Peter  Cooper  and  others.  Peter  Cooper  expected 
financial  gains  from  the  successful  completion  of  the  Bal- 
timore and  Ohio,  and  when  it  seemed  uncertain  whether 
locomotives  could  be  run  on  a  road  having  grades  and 
sharp  curves.  Cooper  designed  a  little  engine  called  the 
Tom  Thumb,  which  weighed  barely  a  ton,  but  which 
succeeded,  in  August,  1830,  in  hauling  4J  tons  around 
curves  and  up  grades  at  a  speed  of  12  to  15  miles  an 


40 


AMERICAN  RAILWAY  TRANSPORTATION 


hour,  and  did  mucli  toward  demonstrating  the  possibility 
of  using  steam-locomotives  on  American  railroads. 

The  first  locomotives  constructed  in  the  United  States 
for  actual  service  on  a  railroad  were  built  in  ISTew  York 
city  at  the  West  Point  Foundry  Works.  Locomotive 
No.  1  was  the  Best  Friend,  erected  in  1830,  and  put 
into  service  that  year  on  the  Charleston  and  Hamburg 
Kailroad.  The  following  year  the  West  Point  was  de- 
livered to  the  same  company.  The  third  locomotive"  to 
come  from  the  West  Point  Foundry  Works  was  the  De 
Witt  Clinton,  also  built  in  1831,  and  put  into  use  on  the 
Mohawk  and  Hudson  Railroad  between  Albany  and 
Schenectady.  Machinists  in  New  York,  Baltimore,  York, 
Pa.,  and  elsewhere  were  studying  and  experimenting,  so 


^1:27 


The  Old  Ironsides,  1832. 


that  within  two  years  from  the  time  when  the  first  tracks 
were  laid  American  builders  had  demonstrated  their  abil- 
ity to  construct  locomotives  adapted  to  the  requirements 
imposed  by  American  conditions.  Among  the  firms  which 
early  undertook  locomotive  construction  was  the  one 
founded  in  Philadelphia  by  Matthias  Baldwin,  whose  first 


THE  MECHANISM  OF  THE  RAILWAY 


41 


engine,  the  Old  Ironsides,  appeared  in  1832.  During 
the  succeeding  seventy  years  the  Baldwin  Locomotive 
"Works  constructed  20,000  locomotives,  and  is  now  build- 
ing 1,500  to  1,800  each  year. 

The  influence  of  George  Stephenson,  of  England,  and 
of  his  celebrated  locomotive  the  Rocket,  was  felt  in 
the  United  States,  but  considering  the  undeveloped  con- 


mm 


W(^-' 


De  Witt  Clinton  Engine  and  Tkain,  1831. 

dition  of  American  industries  in  1830,  a  surprisingly 
small  number  of  English  engines  were  imported.  The 
needs  of  our  railroads  were  mainly  supplied  by  our  own 
foundries  and  shops.  'Nov  were  British  models  followed 
to  much  extent.  American  designers  followed  new  lines 
in  order  to  meet  novel  conditions.  They  were  so  success- 
ful in  making  engines  that  would  work  on  curves  and 
climb  grades  that  American  locomotives  soon  began  to  be 
sold  in  England. 

As  compared  with  the  locomotives  with  which  we 
arc  now  familiar,  those  built  in  1830  seem  tiny  and 
curiously  designed.  The  first  locomotives  constructed 
for  actual  service  weighed  from  3  to  5  tons;  the  weight 
of  the  De  Witt  Clinton  was  3^  tons.  The  English 
engines  imported  were  double  that  weight  and  proved 
too  heavy  for  the  tracks  with  rails  of  wood  surfaced  with 
strap  iron.  The  John  Bull  engine,  shown  in  the  illus- 
tration, was  imported  in  1831  for  use  on  the  Camden  and 
Amboy  line,  the  line  connecting  New  York  and  Phila- 
delphia.    It  weighed  10  tons,  and  was  the  heaviest  en- 


42 


AMERICAN  RAILWAY  TRANSPORTATION 


gine  run  up  to  that  time.     Indeed,  its  great  size  was  a 
positive  disadvantage  to  the  company  for  some  time. 

The  American  locomotives  and  cars,  unlike  the  Eng- 
lisli  and  those  on  the  Continent,  where  English  models 
w^ere  generally  followed,   early  adopted  a  swivel   truck. 


.ioii.N  j;iLL  Engike  Axi)  TjiAiN,  1831. 

After  the  first  few  years  practically  all  American  locomo- 
tives had  eight  wheels,  four  driving-wheels  under  the 
rear  part  of  the  engine  and  a  four-wheeled  truck  carrying 
the  fore  part  of  the  boiler,  the  truck  being  fastened  to 
the  engine  by  means  of  a  bolt  which  permitted  the  truck 
to  swing  or  swivel  through  several  degrees  and  enabled 
the  engine  to  round  sharp  curves.  The  swiveling  truck 
seems  to  have  been  thought  of  by  several  people  about 
the  same  time.  Ross  Winans,  of  Baltimore,  used  it  under 
a  passenger-coach,  in  1831.     The  same  year  he  placed  a 


Lancaster  Engike  and  Train,  run  on  Pennsylvania  State  Railroad,  1834. 

truck  under  the  forward  part  of  a  locomotive.  In  1831, 
moreover,  the  truck  principle  was  applied  to  two  locomo- 
tives built  in  ^N'ew  York.  One  was  designed  by  Horatio 
Allen,  while  chief  engineer  of  the  Charleston  and  Ham- 
burg Railroad,  and  the  other  by  John  B,  Jervis,  chief 


THE  MECHANISM  OF   THE  RAILWAY 


43 


engineer  for  the  Mohawk  and  Hudson  Railroad.  The 
engine  planned  by  Jervis  was  more  in  accordance  with 
subsequent  designs,  and  to  him  the  greater  credit  is  due. 
The  American  or  Campbell  type  is  the  name  ap- 
plied to  the  locomotive  having  four  connected  driving- 
wheels  and  a  four-wheel  truck.  The  first  engine  of  this 
design  was  built  in  1836  by  James  Brooks  for  Henry  R. 
Campbellj  both  of  Philadelphia.  This  speedily  became 
the  prevailing  design  for  the  passenger  service,  and  has 


First  Campbell  Locomotive,  1836. 


remained  until  the  present  day  the  approved  form  of 
passenger  locomotive,  except  when  special  conditions  re- 
quire the  use  of  a  locomotive  of  a  different  type. 

One  essential  feature  of  the  locomotive  awaited  intro- 
duction until  1837,  and  that  was  the  use  of  equalizing- 
beams  by  means  of  which  the  weight  on  the  driving-wheels 
ceases  to  be  affected  by  the  inequalities  of  the  elevation 
in  the  track.  Since  1837  locomotives  have  been  so  con- 
structed that  each  drivmg-wheel  can  have  a  vertical 
motion  independent  of  the  other  wheels,  and  can  so  move 


4A  AMERICAN  RAILWAY  TRANSPORTATION 

without  changing  very  greatly  the  pressure  imposed  by 
the  wheel  on  the  track.  Equalizing-beams  were  first 
used  in  the  Hercules,  designed  by  Joseph  Harrison,  Jr., 
and  constructed  by  the  Baldwin  Locomotive  Works. 

The  differentiation  in  designs  for  freight  and  passen- 
ger locomotives  began  to  be  evident  after  1840.  The 
Campbell  engine  was  the  model  generally  followed  for 
the  passenger  service,  but  for  handling  freight  traffic 
heavier  and  more  powerful  locomotives,  having  six,  eight, 
or  ten  driving-wheels,  and  all  connected,  were  found 
necessary.  There  are  now  three  general  classes  of  heavy 
engines:  the  mogul,  with  six  connected  drivers;  the 
consolidation,  with  eight  drivers;  and  the  decapod,  hav- 


TuE  Mogul  Type  of  Compound  Freight-Engine, 
Baldwin  Locomotive  Works. 

ing  ten  coupled  driving-wheels.  Ross  Winans,  of  Balti- 
more, in  1844  constructed  a  locomotive  with  eight  con- 
nected wheels,  and  four  years  later  brought  out  the  first 
"  camel "  type  of  engine,  so  named  because  the  engine- 
driver's  cab  is  placed  above  the  middle  part  of  the  boiler. 
The  construction  of  mogul  and  consolidation  locomotives 
became  frequent  about  thirty  years  ago. 

During  the  past  fifty  years  a  great  many  important 
improvements  have  been  made  in  locomotives.  Among 
the  most  valuable  innovations  was  the  introduction  of 
compound  locomotives,  by  means  of  which  the  steam,  in 
passing  from  the  boiler  to  the  exhaust,  is  used  in  two 


THE  MECHANISM  OF  THE  RAILWAY 


45 


cylinders  in  succession.     By  that  means  a  greater  amount 
of  power  is  derived  from  a  given  quantity  of  fuel. 

The    locomotive    in    use    to-day   v^eighs    as   much    as 
twenty-five  of  the  engines  used  at  the  beginning  of  rail- 


CoNsuLiDATioN  Typk  OF  Freight-Engine,  Baldwin  Locomotive  Works. 

reading.  A  locomotive  weighing  200,000  pounds  is  now 
not  considered  notably  heavy,  and  some  weighing  more 
than  300,000  pounds  are  in  use.  In  1850  a  locomo- 
tive weighing  more  than  50,000  pounds  was  considered 
large.  Moreover,  the  increase  in  the  size  of  the  locomo- 
tive is  but  one  of  many  ways  by  which  its  development 
may  be  indicated.  Fifty  years  since,  a  train-load  of  200 
tons  would  have  been  considered  a  heavy  one  for  a  loco- 


Decafou  Fueight-Engtne,  Baldwin  Locomotive  Wouks. 

motive  to  handle,  but  now  2,000  to  2,500  tons  are  regu- 
larly being  handled  over  long  distances  by  the  largest 
types  of  freight-engines.  The  achievements  in  the  in- 
crease of  speed  of  locomotives  have  been  less  wonderful, 


4:6  AMERICAN  RAILWAY  TRANSPORTATION 

but  the  schedule  speed  of  60  to  65  miles  an  hour  for  pas- 
senger-trains, now  regularly  maintained  on  many  Amer- 
ican and  European  roads,  is  double  the  maximum  rate 


A  High-Speed  Compound  Passenger-Engine,  Baldwin  Locomotive  Works. 

possible  forty  years  ago,  and  the  discomforts  and  risks  of 
the  present  are  incomparably  less  than  those  formerly 
incident  to  travel. 

The  improvements  in  travel  and  traffic  have  resulted 
quite  as  much  from  the  progressive  adaptation  of  the 
vehicle  to  the  service  to  be  performed  as  from  better- 
ments in  the  road-bed  and  the  locomotive.  The  passen- 
ger-coaches first  used  were  similar  to  the  stage-coaches, 
and  this  was  so  because  carriage-builders  in  making  vehi- 
cles for  the  railroad  followed  the  designs  with  which  they 
were  familiar.  Indeed,  in  Europe  the  passenger-coaches 
in  use  to-day,  with  their  small  compartments  entered 
from  the  side,  indicate  that  the  stage-coach  influenced 
the  style  of  construction.  Coaches  of  the  European  type 
were  used  on  a  few  of  the  early  American  roads. 

The  construction  of  coaches  for  American  railroads, 
differing  totally  in  design  from  those  used  on  highways, 
began  with  the  opening  of  the  first  lines.  The  first  rail- 
road-coaches were  not  unlike  the  four-w^heeled  caboose 
of  to-day  in  appearance,  but  after  1830  longer  vehicles 
mounted  on  two  four-wheeled  trucks  began  to  be  used, 
and  the  typical  American  coach  soon  came  to  differ  from 


THE  MECHANISM  OF  THE  RAILWAY 


47 


Passenger-Coach,  1835.  Usep  on  the  Portage 
Eailroad  over  the  Alleghany  Mountains, 
Pennsylvania. 


the  European  in  being  longer,  in  having  the  doors  at  the 
ends,  and  in  having  a  central  aisle.  This  form  of  coach 
was  probably  adopted  because  the  curves  in  our  tracks 

required     the     use 

of  trucks  under  ^'^^-^"  -%^;;^  ~  :^^~  ^^  lE^-.^,'-^ 
the  cars  as  well  as 
under  the  engines. 
Many  improve- 
ments in  design 
were  necessary  to 
produce  the  com- 
fortable coaches  of 
to-day.  Better  ven- 
tilation was  se- 
cured    by     raising 

the  central  half  of  the  roof  and  inserting  "  deck-lights." 
This  was  first  done  in  1836,  but  it  was  several  years  before 
the  raised  roof  became  a  feature  of  all  passenger-cars.  The 
ventilation  thus  afforded  was  by  no  means  perfect,  and  the 
problem  of  maintaining  pure  air  in  crowded  cars  has  not 
yet  been  fully  solved.  For  thirty  years  the  jolting  caused 
by  the  loose  coupling  of  cars  was  a  great  discomfort  to  trav- 
elers, but  patent 
automatic  coup- 
lers, of  which 
there  are  many 
kinds  in  use,  have 
now  obviated  that 
trouble. 
The  sleeping-car,  as  we  know  it  to-day,  originated 
with  George  M.  Pullman,  who  built  the  Pioneer  A  in 
1864.  Cars  had  been  fitted  up  with  tiers  of  bunks  on 
each  side  as  early  as  1837,  but  the  discomforts  of  such 
accommodations  were  so  great  that  sleeping-cars  did  not 
become  popular  until  the  Pullman  and  Wagner  services 


'^7^ 


An  Early  Pabsbnger-Coach. 


4:8  AMERICAN  RAILWAY  TRANSPORTATION 

became  available.  The  sleeping-car  was  soon  followed 
by  the  buffet-  or  hotel-car,  and  that  by  drawing-room- 
and  dining-cars.  The  necessity  for  passing  from  one  car 
to  another  suggested  the  vestibuling  of  trains.  .  The  idea 
is  as  old  as  1852,  when  a  man  by  the  name  of  Waterbury 
designed  a  vestibuled  car.  Some  cars  were  fitted  up  with 
vestibules  that  year,  but  the  first  vestibuled  train  like 
those  with  which  we  are  familiar  was  designed  and  built 
by  Pullman  and  was  run  on  the  Pennsylvania  Kailroad 
in  1886. 

The  air-brake,  first  successfully  applied  to  passenger- 
trains  in  1868,  was  one  of  the  most  valuable  of  all  the 
inventions  by  which  the  improvement  of  the  transporta- 
.tion  service  has  been  brought  about.  In  1887  the  air- 
brake had  been  developed  so  that  it  was  practicable  to 
use  it  on  freight-trains,  and  at  the  present  time  the  law 
requires  all  trains  in  the  United  States  to  be  equipped 
with  air-brakes  by  w^hich  the  train  can  be  controlled  by 
tke  engineer.  The  days  of  the  hand-brake  are  past.  The 
power-brake  has  greatly  lessened  the  risks  to  which  em- 
ployees are  exposed,  has  decreased  the  danger  of  travel, 
and  has  made  possible  much  greater  speed  for  freight- 
as  well  as  passenger-trains. 

Many  appliances  contribute  to  the  comfort  and  safety 
of  the  passenger.  The  railroad  companies  are  striving 
to  enable  the  traveler  to  command  the  conveniences  of 
living  and  the  facilities  for  transacting  business  that  he 
would  have  at  home  or  at  a  hotel.  That  ideal  has  hardly 
been  reached;  but,  with  the  aid  of  electricity,  much  prog- 
ress has  been  made  toward  its  realization.  We  have, 
however,  not  reached  the  limits  of  improvements  in  com- 
fort or  in  speed  of  travel.  Indeed,  we  have  in  all  prob- 
ability hardly  begun  to  appropriate  the  possibilities  of 
electricity. 

The  freight-car  is  to-day  built  in  many  designs  for 


I 


THE  MECHANISM  OP  THE  RAILWAY  49 

the  better  accommodation  of  the  numerous  kinds  of  traffic 
to  be  handled.  Starting  with  only  open  and  box  cars, 
crudely  constructed,  mounted  on  four  wheels  and  having 
a  loading  capacity  of  3  to  5  tons,  the  freight  equip- 
ment of  railroads  has  come  to  include  the  large  variety 
of  cars  with  which  we  are  now  familiar,  provided  with 
many  mechanical  appliances  for  saving  labor  costs  and 
minimizing  damages  to  property  in  transit,  and  capable 
of  carrying  loads  of  over  50  tons.  Many  of  the  improve- 
ments in  car  construction,  as,  for  instance,  the  swiveling 
truck  having  four  or  more  wheels,  improved  couplings, 
and  air-brakes,  were  as  applicable  to  the  freight-car  as 
to  the  passenger-coach. 

Specialization  in  freight-cars  continues  with  the  grow- 
ing volume  of  traffic.  There  are  special  cars  for  carry- 
ing cattle,  dressed  meats,  oil,  coal,  coke,  iron  ore,  fruit, 
milk,  and  many  other  commodities,  a  special  car  being 
brought  into  use  whenever  there  develops  a  new  kind  of 
traffic  running  regularly  and  in  large  volume  and  not 
capable  of  being  handled  advantageously  in  the  ordinary 
box  or  flat  cars.  The  invention  of  the  refrigerator-  and 
heater-cars  was  incidental  to  this  specialization,  and  has 
been  of  great  value  to  producer  and  consumer.  The  dis- 
tribution of  perishable  commodities  throughout  the  entire 
country  can  be  carried  on  during  all  seasons  of  the  year, 
to  the  great  advantage  both  of  the  producer  and  con- 
sumer. The  products  of  the  tropical  and  the  cold  sections 
of  the  world  are  now  available  for  the  people  of  both 
regions  at  all  times,  and  the  volume  and  value  of  freight 
transported  are  greater  than  they  could  be  when  the 
movement  of  many  kinds  of  goods  was  dependent  upon 
the  weather. 

The  increase  in  the  capacity  of  the  freight-car,  par- 
ticularly in  the  United  States,  has  been  quite  as  remark- 
able as  the  growth  in  the  size  of  locomotives.  With  the 
5 


60  AMERICAN  RAILWAY  TRANSPORTATION 

construction  of  stronger  tracks  and  witli  the  use  of  steel 
rails  tlie  railroad  companies  have  taken  advantage  of  the 
economy  resulting  from  the  use  of  large  cars.  The  larger 
the  cars  the  less  the  "  tare  "  or  weight  of  the  vehicles 
as  compared  with  the  weight  of  the  cargo.  The  larger 
the  cars  the  greater  the  live  load  the  engine  can  haul. 
Twenty-five  years  ago  20  tons  was  the  standard  car- 
load in  this  country,  and  such  a  weight  would  to-day  be 
considered  a  heavy  one  in  most  countries  of  Europe;  but 
for  some  time  past  the  standard  box  and  open  car  in  the 
United  States  has  been  one  built  to  carry  30  tons. 
Many  cars  now  used  in  carrying  coal,  ore,  and  other 
heavy  commodities  in  this  country  are  loaded  with  50 
to  55  tons  of  cargo,  and  it  seems  probable  that  it  will 
not  be  long  before  the  50-ton  car  will  become  the  standard 
for  handling  most  kinds  of  freight. 

The  construction  of  cars  with  a  capacity  of  50  tons 
or  more  has  been  facilitated  by  the  large  use  of  steel, 
both  in  the  truck-frames  and  in  the  body  of  the  car.  In- 
deed, a  large  share  of  the  cars  now  being  built  for  heavy 
traffic  are  constructed  entirely  of  steel.  Just  as  the  small 
wooden  sailing  vessel  is  giving  way  to  the  large  steel 
steamship,  so  is  the  wooden  freight-car  being  displaced  by 
steel  cars  of  greater  strength  and  capacity. 

The  facilities  for  handling  freight  at  stations  or  ter- 
minals constitute  an  important  part  of  the  mechanism  by 
which  the  transportation  service  is  performed;  indeed, 
the  economies  in  time  which  have  been  made  possible  by 
the  improvements  in  road-bed,  locomotives,  and  cars  would 
be  largely  destroyed  if  freight  were  still  loaded  and  un- 
loaded by  the  primitive  methods  of  hand  labor  that  used 
to  prevail.  At  terminals  where  large  quantities  of  mixed 
cargoes  are  handled,  huge  warehouses  equipped  with 
cranes  and  elevators  are  provided.  Grain  is  loaded  and 
unloaded  by  machinery.     Cars  are  filled  with  coal,  coke, 


THE  MECHANISM  OF  THE  RAILWAY  61 

and  ore  from  "  pockets ''  or  chutes,  which,  discharge  their 
contents  into  the  cars  by  the  force  of  gravity,  and  min- 
eral cars  are  constructed  with  sides  or  bottoms  that  can 
be  dropped  so  as  to  discharge  the  cargo  without  its  being 
handled. 

The  facilities  for  handling  iron  ore  and  coal  repre- 
sent the  most  complete  use  to  which  machinery  has  been 
put  for  loading  and  unloading  heavy  freight  quickly  and 
cheaply.  Electrically  operated  hoists,  traveling-cranes, 
and  car  dumps  accomplish  in  hours  what  formerly  took 
days  to  perform,  and  at  a  fraction  of  the  previous  cost. 
Buckets  holding  from  one  to  five  tons  of  ore  are  filled 
automatically,  carried  several  hundred  feet,  and  dumped 
in  a  few  seconds;  and  loaded  cars  are  picked  up  bodily 
and  their  contents  of  coal  or  ore  emptied  into  the  hold  of 
a  vessel  or  upon  the  storage  dump.  A  trip  to  one  of  the 
ore  ports  on  the  Great  Lakes  or  to  one  of  the  large  sea- 
board terminals  will  give  the  visitor  one  of  the  best  pos- 
sible illustrations  obtainable  of  the  marvelous  adaptation 
of  machinery  to  the  heavy  work  of  the  world. 

REFERENCES    FOR    FURTHER    READING 

Tanner,  H.  S.  A  Description  of  the  Canals  and  Railroads  of  the 
United  States.     1840. 

Pangborn,  J.  G.     The  World's  Railway.     1894. 

Brown,  William  H.  The  History  of  the  First  Locomotives  in 
America,  from  Original  Documents  and  the  Testimony  of  Living 
Witnesses.     1871.     [A  book  rich  in  historical  material.] 

Prout,  H.  G.  Vol.  ii  of  The  United  States  (edited  by  N.  S.  Shaler), 
pp.  163-178,  a  paper  on  Railroad  Construction  and  Equipment. 

The  American  Railway,  its  Construction,  Development,  Management, 
and  Appliances.  1892.  [A  collection  of  papers  by  different  au- 
thors. M.  N.  Forney  has  a  valuable  paper  on  American  Loco- 
motives and  Cars.     Pp.  100-148.] 

History  of  the  Baldwin  Locomotive  Works,  Philadelphia,  1831-1903. 


CHAPTEK   Y 

THE  PRESENT  RAILWAY   SYSTEM   OF   THE   UNITED    STATES 

At  the  close  of  the  year  1902  there  were  204,000 
miles  of  railroad  lines  in  the  United  States.  Several  of 
these  lines  have  more  than  one  track,  and  if  the  total 
length  of  track  in  the  various  roads  and  in  their  freight- 
yards  be  taken  as  the  basis  of  length,  there  are  found  to 
be  about  275,000  miles  of  railroad-track  in  this  country. 
This  vast  mileage  is  owned  by  over  2,000  corporations. 
Many  of  these  corporations,  it  is  true,  are  subsidiary  to 
others,  but  according  to  the  reports  of  the  Interstate 
Commerce  Commission,  there  are  over  1,000  operating 
companies  at  the  present  time. 

The  railroad  system  of  the  United  States  as  a  whole 
is  too  vast  and  is  composed  of  too  many  parts  to  be  readily 
comprehended.  It  is  impossible  for  the  ordinary  mind 
at  least  to  carry  the  details  of  such  a  large  and  intricate 
picture  as  is  presented  by  a  railway  net  comprising  200,- 
000. miles  of  line  and  spread  over  a  country  3,000  miles 
in  breadth.  By  dividing  the  United  States  into  several 
natural  territorial  sections,  and  by  classifying  the  rail- 
road lines  or  systems  according  to  those  sections,  and  by 
grouping  the  railroads  according  to  ownership,  it  is  pos- 
sible to  get  at  least  a  general  picture  of  what  for  con- 
venience' sake  we  term  the  American  railway  system. 

The  most  general  and  most  frequent  grouping  of  the 
railroads  of  the  United  States  territorially  is  into  three 
sections;  one  section  being  that  north  of  the  Ohio  and 
52 


54  AMERICAN  RAILWAY  TRANSPORTATION 

James  Kivers  and  east  of  the  Mississippi,  another  the 
region  south  of  the  Ohio  and  James  and  east  of  the  Mis- 
sissippi, and  the  third  the  country  west  of  the  Mississippi. 
A  basis  for  this  grouping  may  be  found  in  well-known 
differences  in  production,  density  of  population,  and  other 
economic  and  social  conditions  prevailing  in  these  three 
sections  of  our  country.  There  are  also  sufficient  differ- 
ences in  the  freight  business  of  the  railroads  in  these 
sections  to  cause  distinct  classifications  of  freight  to  have 
been  Worked  out  for  each  of  the  three  regions.  While 
this  grouping  of  the  railroads  of  the  United  States  into 
three  sections  has  been  serviceable  for  purposes  of  freight 
classification,  the  sections  are  so  large  that  further  sub- 
division is  necessary.  Within  each  of  these  large  groups 
there  are  distinct  subdivisions,  due  in  part  to  diversity  of 
physical  conditions,  and  in  part  to  the  fact  that  the  rail- 
roads in  different  portions  of  the  country  have  come,  in 
a  large  degree,  to  be  owned  by  a  limited  number  of  groups 
of  capitalists. 

The  railway  system  of  the  United  States  as  a  whole 
may  be  divided  into  seven  groups,  each  group  occupying 
a  nearly  although  not  completely  distinct  section  of  the 
country.  Within  some  of  these  sections  the  railroad  sys- 
tem may  be  subdivided  into  two  or  more  parts,  dependent 
upon  whether  a  general  or  detailed  classification  is  sought 
for.  The  first  of  these  territorial  groups  of  railroads 
comprises  the  'New  England  States.  The  railroads  in  this 
section  differ  from  those  of  other  parts  of  the  country, 
because  they  serve  the  region  where  population  is  densest; 
where  the  passenger  business  as  compared  with  the 
freight  is  larger  than  in  any  of  the  other  States,  and 
where  the  local  freight  business  as  contrasted  with  the 
through  freight  is  of  relatively  greater  importance.  Bos- 
ton is  the  great  port  of  the  New  England  States,  and  the 
roads  north  of  Boston  are  quite  distinct  from  those  south 


66  AMERICAN  RAILWAY  TRANSPORTATION 

of  that  city.  The  interchange  of  traffic  between  the  two 
sections  is  comparatively  small,  and  the  railroad  lines  in 
the  two  sections  are  under  the  control  of  different  man- 
agements. 

The  region  west  of  ISTew  England  and  the  middle  At- 
lantic seaboard,  north  of  the  Ohio  and  James  Rivers,  and 
east  of  the  cities  of  Chicago  and  St.  Louis  comprises 
another  section  of  the  country  within  which  there  is 
considerable  unity  in  the  operation  and  ownership  of  the 
railroad  systems.  The  railroads  in  this  group  have  the 
heaviest  freight  traffic  of  any  roads  in  the  country.  Most 
of  them  were  built  from  the  East  toward  the  West,  for  the 
purpose  of  bringing  the  agricultural,  forest,  and  mineral 
products  of  the  great  central  "West  to  the  Atlantic  sea- 
board to  supply  our  own  and  European  markets,  and  for 
the  purpose  of  giving  the  manufacturing  industries  of  the 
northeastern  section  of  the  United  States  a  western  outlet 
for  the  products  of  the  mills  and  factories.  The  railroads 
in  this  group  are  often  spoken  of  as  the  "  trunk  lines," 
because  the  first  through  or  trunk  lines  in  the  United 
States  were  those  built  to  connect  the  Atlantic  seaboard 
with  the  Great  Lakes  and  the  Ohio  River.  The  corpora- 
tions controlling  these  first  trunk  lines  have  extended 
their  systems  to  Chicago  and  St.  Louis,  and  the  term 
"  trunk  lines  "  has  come  to  be  applied  to  the  roads  be- 
tween the  Atlantic  seaboard  and  the  central  West. 

Comprised  within  this  trunk-line  territory  is  a  dis- 
tinct subdivision  of  lines  whose  business  consists  chiefly 
of  transporting  anthracite  coal  from  the  Pennsylvania 
mines  to  the  seaboard.  Some  of  the  hard  coal  mined  in 
Pennsylvania  is  handled  by  the  trunk  lines,  but  the 
larger  part  of  this  coal  is  mined  and  transported  by 
other  than  the  trunk-line  companies. 

The  section  south  of  the  James  and  Ohio  and  east  of 
the  Mississippi  is  usually  spoken  of  as  Southern  territory. 


58  AMERICAN  RAILWAY  TRANSPORTATION 

The  traffic  conditions  in  Southern  territory  differ  from 
those  in  other  parts  of  the  country,  and  it  is  probable 
that  the  railroads  in  this  part  of  the  United  States  will 
always  remain  a  fairly  distinct  group.  The  Alleghany 
Mountains  separate  the  Southern  territory  into  two  parts, 
one  of  which  is  tributary  to  the  Gulf  and  the  other  to  the 
Atlantic  seaboard.  To  some  extent  the  lines  in  these  two 
parts  are  operated  under  separate  managements,  but 
there  is  manifest  a  marked. tendency  toward  the  unifica- 
tion of  ownership  and  control  of  the  lines  in  both  parts 
of  the  Southern  territory. 

To  the  west  and  north  of  Chicago  and  St.  Louis,  and 
including  the  chief  grain-raising  States  of  the  United 
States,  may  be  found  another  group  of  railroads.  The 
roads  in  this  territory  are  called  the  "  granger ''  lines, 
a  term  that  originated  thirty  years  ago  at  the  time  when 
the  farmers  of  the  central  West  were  organizing  their  so- 
called  "granges,"  or  societies.  The  granger  roads  radi- 
ate from  three  centers,  the  chief  of  which  is  Chicago. 
At  the  head  of  Lake  Superior  is  another  growing  center 
of  traffic,  while  St.  Louis  has  always  been  an  important 
point  for  the  collection  and  distribution  of  the^  traffic 
from  and  to  the  agricultural  central  West. 

South  and  west  of  St.  Louis  lies  the  Southwestern 
territory,  within  which  there  is  a  large  number  of  rail- 
way lines,  some  of  them  having  St.  Louis  and  Memphis 
connections,  and  others  being  more  distinctly  tributary 
to  Gulf  ports.  A  large  part  of  the  roads  in  this  system 
were  formerly  controlled  by  Jay  Gould;  now  they  are 
managed  by  a  group  of  capitalists  headed  by  George  J. 
Gould,  and  these  lines  are  often  spoken  of  as  the  Gould 
roads. 

West  of  the  sections  occupied  by  the  granger  and 
Southwestern  lines  lies  the  territory  occupied  by  the  trans- 
continental or  Pacific  roads.     These  transcontinental  lines 


a 

O 

o 
5  2 


5! 
^^ 

K   CO 

%^^     I 

^  ^  §  ^  fc   '^ 

5  1  ^  !ti  :^  J 


'^Z^^^- 


60  AMERICAN  RAILWAY  TRANSPORTATION 

have  connections  with  Chicago  and  the  Mississippi,  and 
consequently  the  territory  occupied  by  the  transcontinental 
lines  overlaps  to  some  extent  the  granger  and  South- 
western sections.  The  transcontinental  lines  are  divided 
into  two  rather  distinct  groups,  the  Northern  and  Southern. 
Within  the  Northern  section  are  comprised  the  Great 
Northern,  the  Northern  Pacific,  the  Chicago,  Burlington 
and  Quincy.  The  Southern  section  includes  the  Union, 
Central,  and  Southern  Pacific  roads,  all  under  one  man- 
agement, and  the  Atchison,  Topeka  and  Santa  Fe,  which 
up  to  the  present  time  has  remained  an  independent  line. 
The  grouping  of  the  railroads  just  given  into  seven 
sections  is  based  upon  physical  differences  prevailing  in 
different  parts  of  the  country,  and  it  is  not  probable  that 
those  differences  will  very  largely  change  with  the  growth 
of  the  country.  We  may  then  expect  such  a  classification 
to  be  fairly  permanent.  The  objection  to  the  classification, 
however,  is  that  it  gives  very  little  information  regarding 
the  ownership  and  management  of  the  American  rail- 
roads. A  classification  based  upon  ownership  and  man- 
agement is  much  more  instructive,  and  may  be  made 
without  especial  difficulty.  This  classification,  however,  is 
subject  to  constant  change  by  transfers  of  ownership  from 
one  set  of  capitalists  to  another.  The  student  will  need 
to  revise  the  classification  year  by  year,  but  the  tendencies 
in  railway  consolidation  are  such  that  the  amount  of 
revision  necessary  can  hardly  be  very  great.  The  classi- 
fication submitted  in  the  following  table  shows  that  the 
largest  share  of  the  great  railroad  mileage  in  this  country 
is  already  in  the  hands  of  a  limited  number  of  large  inter- 
ests. Between  these  groups  of  capitalists  there  is  devel- 
oping a  community  of  interest  or  harmony  of  action  that 
is  rapidly  restraining  the  competition  in  rate-making  that 
formerly  prevailed  among  separately  managed  railway  sys- 
tems.    The  table  on  pages  62  and  63  groups  the  leading 


62 


AMERICAN  RAILWAY  TRANSPORTATION 


Grouping  of  American  Railroads  by  Ownership  and 
Territory,  1902 


Systems  and  Roads. 


Mileage. 


Territory. 


1.  The  Boston  and  Maine 

2.  New  York,  New  Haven  and  Hartford 

3.  The  Vanderbilt  roads : 

Boston  and  Albany 

New  York  Central  and  Hudson  River. . 
Delaware,  Lackawanna  and  Western . . . 
Lake  Shore  and  Michigan  Southern .... 

Michigan  Central 

New  York,  Chicago  and  St.  Louis 

Cleveland,  Cincinnati,  Chicago  andSt.  Louis 

Lake  Erie  and  Western 

Pittsburg  and  Lake  Erie 

Indiana,  Illinois  and  Iowa 

Chicago  and  Northwestern 

Total 

4.  The  Pennsylvania  System : 

Pennsylvania  Railroad  (east  of  Pittsburg) 
Pennsylvania  Company  (west  of  Pittsburg) 

Grand  Rapids  and  Indiana 

Terre  Haute  and  Indianapolis  (Vandalia) . 

Baltimore  and  Ohio 

Norfolk  and  Western 

Chesapeake  and  Ohio 

Total ' 

5.  The  Philadelphia  and  Reading  System  (owned 

by  the  Vanderbilt-Pennsylvania  interests) 

6.  Morgan  roads : 

Lehigh  Valley 

Southern  Railway 

Cincinnati,  New  Orleans  and  Texas  Pacific 

Mobile  and  Ohio 

Central  of  Georgia 

Total 

7.  Morgan  and  Atlantic  Coast  Line  Co.  roads: 

Atlantic  Coast  Line 

Louisville  and  Nashville 

Nashville,  Chattanooga  and  St.  Louis. . . . 

Georgia  Railroad 

Total 

8.  Illinois  Central 

9.  Seaboard  Air  Line 


3,283 

2,027 

394 

3,092 

947 

1,702 

1,658 

533 

2,355 

887 

127 

295 

8,748 


20,798 


5,422 
4,926 
584 
693 
4,340 
1,700 
1,636 


19,301 


2,145 

1,393 

6,779 

338 

874 
1,845 


11,229 


3,587 

4,916 

942 

626 


10.071 


5,380 
2,611 


)  New  Eng- 
\       land. 


Trunk 
line. 


Granger. 


Trunk 
^  line. 


-  Southern. 


RAILWAY  SYSTEM  OF  THE   UNITED  STATES 


63 


Systems  and  Roads. 


10.  Gould  roads : 

Wabash 

Wheeling  and  Lake  Erie 

Western  Maryland 

West  Virginia  Central  and  Pittsburg 

Missouri  Pacific 

St.  Louis,  Iron  Mountain  and  Southern  . . 

St.  Louis  Southwestern 

Texas  and  Pacific 

International  and  Great  Northern 

Denver  and  Rio  Grande  (Southern  Trans- 
continental territory) 

Total 

11.  Moore  roads : 

St.  Louis  and  San  Francisco 

Chicago,  Rock  Island^and  Pacific 

Total .- 

12.  Chicago,  Milwaukee  and  St,  Paul 

13.  Chicago  Great  Western 

14.  Hawley  roads : 

Minneapolis  and  St,  Louis 

Iowa  Central 

Colorado  and  Southern  (Southern  Trans- 
continental territory) 

Total 

15.  Wisconsin  Central 

16.  Harriman  roads: 

Chicago  and  Alton 

Union  Pacific 

Southern  Pacific 

Oregon  Short  Line 

Oregon  Railway  and  Navigation  Company 
Total 

17.  Morgan-Hill  roads : 

Great  Northern 

Northern  Pacific 

Chicago,  Burlington  and  Quincy 

Erie  Railroad '. 

Total 

18.  Pere  Marquette 

19.  Atchison,  Topeka  and  Santa  Fe 

Grand  total  of  19  systems  listed  above 


Mileage. 


3,490 

469 

258 

161 

3,877 

1,773 

1,293 

1,710 

1,083 

2,390 


15,504 


4,946 

8,057 


13,003 


6,604 
956 

642 

558 

1,176 


2.376 


978 

920 
3,115 
9,621 
1,740 
1.072 


16,468 


5,849 
5,749 
8,353 
2,556 


22,507 


2,204 

7,876 


I  Trunk 
r  line. 


South- 
western. 


Southwestern 
and  North- 
western. 


165,321 


Territory. 


North- 
western or 
"granger." 


Southern 
\:  transcon- 
tinental. 

Northern 
transcon- 
tinental. 

Northwest'n. 

[Trunk 
I    line. 

Southern 
transcon- 
tinental. 


64  AMERICAN  RAILWAY  TRANSPORTATION 

railroad  systems  in  the  United  States  by  ownership  and  by 
territorial  sections.  The  mileage  of  each  system  at  the 
close  of  1902  is  given.  Such  a  table  as  this  has  much 
value,  because  it  shows  clearly  to  what  extent  railway  com- 
bination had  progressed  up  to  the  close  of  1902.  The 
reader  will  understand  that  the  mileage  of  nearly  every 
railroad  company  changes  more  or  less  each  year,  and  that 
there  are  more  or  less  frequent  changes  in  the  ownership 
of  roads;  and  that  consequently  the  table  is  not  strictly 
accurate  for  1903,  and  will  be  less  so  each  succeeding 
year. 

The  above  grouping  of  the  railroads  of  the  United 
States  does  not  show  with  entire  satisfaction  the  relations 
of  some  of  the  railroad  systems  to  each  other.  The  Erie 
is  rightly  classified  as  a  Morgan-Hill  road,  although  it 
has  not  yet  been  operated  in  connection  with  the  Western 
lines  of  those  owners.  The  Central  of  'New  Jersey  is 
controlled  by  the  Philadelphia  and  Reading,  which  is  now 
owned  jointly  by  the  Lake  Shore  and  Michigan  Southern 
and  the  Baltimore  and  Ohio.  That  Mr.  J.  P.  Morgan's 
relations  with  the  Yanderbilt  interests  are  becoming 
closer  is  suggested  by  his  having  a  place  01:1  the  executive 
committee  of  the  New  York  Central.  The  Atlantic  Coast 
line,  which  is  apparently  an  independent  company,  owns 
the  Plant  System,  and  has  a  half-interest  in  the  Louisville 
and  Nashville.  The  other  half  of  the  Louisville  and 
Nashville  is  owned  by  the  Southern  Railway,  which  is  a 
Morgan  road.  The  Nashville,  Chattanooga  and  St.  Louis 
Railroad  and  the  Georgia  Railroad  are  controlled  by  the 
Louisville  and  Nashville. 

The  roads  listed  in  the  foregoing  table  comprise  over 
four-fifths  of  the  total  mileage  of  the  country,  and  they 
handle  much  more  than  four-fifths  of  the  total  traffic 
moved  by  rail.  There  are  but  19  groups  of  owners  men- 
tioned in  the  table,  and  of  those  19,  8 — the  Yanderbilt, 


RAILWAY  SYSTEM  OF  THE  UNITED  STATES         65 

the  Pennsylvania,  the  Morgan,  the  Atlantic  Coast  Line 
Company,  the  Gould,  the  Harriman,  the  Moore,  and  the 
Morgan-Hill — groups  own  or  control  two-thirds  of  the 
railroad  mileage  in  the  United  States.  Each  one  of  the 
groups  represents  a  host  of  individual  investors,  but  the 
control  of  the  property  of  each  group  is  centralized  in 
the  individual,  or,  at  most,  the  few  men,  standing  at  the 
head  of  the  "  interest/' 

Some  of  these  systems  of  roads  have  a  greater  mile- 
age and  a  larger  volume  of  traffic  than  the  railroads  in 
any  of  the  European  states  with  the  exception  of  Great 
Britain,  France,  Germany,  and  Russia.  Indeed,  there 
is  probably  more  freight  handled  over  the  group  of  roads 
controlled  by  the  Pennsylvania  interests  than  over  the 
railroad  system  of  any  European  country. 

The  table  shows  a  rather  marked  parallelism  between 
the  territorial  grouping  and  the  consolidation  of  systems 
by  ownership  or  "  community  of  interests.''  It  seems 
probable  that  it  will  not  be  many  years  before  the  rail- 
roads of  the  United  States  as  a  whole  will  be  divided  into 
a  small  number  of  systems,  each  serving  a  well-defined 
territory,  and  each  owned  by  a  distinct  group  of  capital- 
ists. Our  experience  promises  to  result  in  conditions 
similar  to  those  which  prevail  in  France  and  Great  Brit- 
ain. In  France  a  large  number  of  corporations  were 
chartered  in  the  beginning  of  railroad  construction,  but 
after  a  few  years  these  companies  consolidated  into  six 
large  ones,  among  which  the  country  was  divided.  In 
Great  Britain  much  the  same  thing  occurred,  and  a  few 
large  companies  came  to  occupy  each  a  fairly  definite 
part  of  the  country. 

This  consolidation  and  territorial  grouping  of  rail- 
roads has  been  accomplished  earlier  in  France  and  Eng- 
land than  in  the  United  States,  because  our  country  is 
much  larger,  and  is  less  developed  industrially.     In  New 


66  AMERICAN  RAILWAY  TRANSPORTATION 

England,  where  conditions  as  regards  density  of  popula- 
tion and  industrial  advancement  were  somewhat  like  those 
of  Europe,  the  process  of  railroad  amalgamation  was 
completed  some  years  since.  What  has  been  finished  in 
'New  England  is  being  worked  out  in  other  parts  of  the 
United  States,  the  progress  toward  consolidation  having 
been  especially  rapid  since  1898. 

Although  the  United  States  includes  a  vast  stretch 
of  territory,  the  country  is  well  supplied  with  railroad 
facilities.  There  are  two  ways  by  which  the  supply  of 
railway  facilities  is  most  frequently  measured.  One  of 
the  methods  is  to  ascertain  the  ratio  between  the  rail- 
road mileage  and  the  number  of  square  miles  of  territory 
in  the  country  or  in  the  section  being  considered — that 
is,  to  determine  the  number  of  miles  of  railroad  per  100 
square  miles  of  territory.  Another  measure  is  found  in 
the  ratio  of  mileage  to  population,  or  in  the  number  of 
miles  of  railroad  per  10,000  inhabitants.  The  number 
of  miles  of  railroad  per  100  square  miles  is  greater  in 
the  "  trunk-line  ''  territory — the  section  between  New 
England  and  Chicago  and  St.  Louis — than  in  any  other 
part  of  the  United  States,  the  number  being  about  19; 
the  New  England  district  comes  second,  with  12.3  miles 
per  100  square  miles  of  territory;  and  the  granger  terri- 
tory third,  with  11.73;  after  which  comes  the  Southern 
district,  then  the  Southwestern,  and  finally  the  Western 
sections  served  by  the  transcontinental  lines.  In  the 
United  States  as  a  whole  there  are  6.51  miles  of  railroad 
for  each  100  square  miles  of  territory. 

Of  the  individual  States,  N'ew  Jersey  ranks  first  in 
the  railway  mileage  per  100  square  miles,  having  30  miles 
for  each  section  of  that  area;  Massachusetts  comes  second, 
with  a  ratio  of  26.5;  Pennsylvania  third,  with  a  ratio  of 
nearly  23;  after  which  come  Ohio,  Connecticut,  and  the 
great  agricultural  States  of  Illinois,  Indiana,  and  Iowa. 


RAILWAY  SYSTEM  OF  THE  UNITED  STATES  6Y 

The  ratio  of  railroad  mileage  to  population  is  very 
different  from  the  ratio  between  mileage  and  territory. 
The  State  of  I^evada,  with  only  909  miles  of  road,  has 
215  miles  per  10,000  inhabitants,  while  the  State  of  Illi- 
nois, with  over  11,000  miles  of  railroad — the  greatest 
mileage  of  any  of  the  States — has  less  than  23  miles  per 
10,000  people.  Massachusetts,  with  next  to  the  longest 
mileage  per  100  square  miles  of  territory,  is  so  thickly 
populated  that  she  has  only  7.55  miles  of  railroad  for 
each  10,000  residents.  The  people  of  Massachusetts, 
however,  are  especially  well  supplied  with  railroad  facil- 
ities. The  railroad  net  is  thickly  woven  and  there  are 
no  people  more  than  a  few  miles  distant  from  a  well- 
equipped  rail  line. 

The  people  living  in  the  eastern  half  of  the  United 
States  are  more  adequately  supplied  with  railroad  facili- 
ties than  are  the  people  of  some  of  the  European  coun- 
tries; but  taking  Europe  as  a  whole,  there  are  7.7  miles 
of  railroad  for  each  100  square  miles  of  territory.  In 
Belgium  there  are  51.6  miles  for  each  such  area,  in 
Great  Britaiin  and  Ireland  the  number  of  miles  is  30, 
and  in  the  German  Empire  25  per  100  square  miles.  In 
European  Russia,  however,  there  are  only  2.4  miles  per 
100  square  miles,  and  in  Sweden  only  1.6  mile.  Western 
Europe  is  better  supplied  territorially  with  railroads  than 
the  United  States  is,  even  in  the  Eastern  part.  Eastern 
and  northern  Europe,  like  the  western  third  of  the  United 
States,  has  a  relatively  small  supply  of  railroads. 

Measured  by  the  ratio  of  railway  mileage  to  popula- 
tion, the  supply  of  railroad  facilities  enjoyed  by  the  peo- 
ple of  the  United  States  is  greater  than  that  possessed  by 
European.  Taking  Europe  as  a  whole,  there  are  only 
4.4  miles  of  railroad  for  each  10,000  people,  which  is 
but  a  little  more  than  one-sixth  of  the  figure  for  the 
United  States,  where  the  ratio  is  25.     In  Great  Britain 


68  AMERICAN  RAILWAY  TRANSPORTATION 

and  Ireland  there  are  5.3  miles  of  railroad  per  10,000 
inhabitants,  in  the  German  Empire  5.6  miles,  in  France 
6.9  miles,  and  in  Switzerland  7.1  miles.  By  comparing 
these  ratios  with  those  for  the  States  of  the  United  States 
it  will  be  seen  that  the  person  living  in  this  country  is 
served  by  a  considerably  greater  length  of  railroad. 

REFERENCES    FOR    FURTHER    READING 

Newcomb,  H.  T.     The  Recent  Great  Railway  Combinations.    Review 

of  Reviews,  vol.  xxiv,  July,  1901. 
Hull,  C.  H.     Railway  Alliance  and  Trade  Districts.     The  Interna- 
tional Monthly,  vol.  iii,  June,  1901. 
Report  of  Industrial  Commission.     Vol.  xix,  pp.  304-322. 
WooDLOCK,  T.  F.     The  Railroad  Gazette,  vol.  xxxiii,  p.  671,  Sep- 
tember 27,  1901. 
Statistics  of  Railways  in  the  United  States.    Annual  Report  by  the 
Interstate  Commerce  Commission. 

[In  preparing  the  table  showing  the  grouping  of  American  rail- 
roads, valuable  assistance  was  rendered  by  Mr.  H.  T.  Newcomb,  for- 
merly Editor  of  the  Railway  World.] 


CHAPTER    YI 

THE    RAILWAY    CORPORATION    AND    ITS    CHARTER 

The  agency  by  which  the  railroad  machine  is  man- 
aged and  the  railway  system  just  described  is  operated 
is  the  corporation.  The  product  resulting  from  the  oper- 
ation of  the  machine  is  the  transportation  service.  The 
executor  of  the  service  is  the  corporation. 

I^othing  has  been  more  characteristic  of  the  develop- 
ment of  industry  during  the  past  fifty  years  than  the  sub- 
stitution of  the  corporation  for  individual  and  partner- 
ship management  of  business  and  the  development  of  the 
corporations  thus  substituted  into  great  and  powerful 
organizations.  In  no  other  line  of  activity  has  the  cor- 
poration developed  in  a  more  typical  manner  than  in  the 
railroad  business,  and  a  brief  study  of  the  railroad  cor- 
poration as  it  exists  to-day  will  be  remunerative  not  only 
to  the  student  of  railway  affairs,  but  to  the  student  of 
economic  activity  in  general. 

In  his  book  on  the  Law  of  Personal  Property,  Theo- 
dore Dwight  defined  a  corporation  as  "  an  artificial  per- 
son, created  by  law,  having  a  continuity  of  existence, 
either  definite  or  indefinite,  and  capacity  to  do  authorized 
acts,  and  capable,  however  numerous  the  persons  that 
compose  it  may  be,  of  acting  as  a  single  individual."  As 
defined  by  Elliott  in  his  standard  work  on  Railway  Law, 
a  corporation  is  "  a  body  consisting  of  one  or  more  per- 
sons, established  by  law  for  certain  specific  purposes,  with 
the  capacity  of  succession  and  with  special  privileges  not 

69 


YO  AMERICAN  RAILWAY  TRANSPORTATION 

possessed  by  individuals,  yet  acting  in  many  respects  as 
an  individual." 

As  these  definitions  state,  a  corporation  is  a  creation 
of  law,  by  means  of  which  several  individuals  may  act 
as  one  person  in  the  performance  of  certain  acts  which 
they  are  authorized  to  execute  by  the  law  creating  the 
corporation.  This  "  artificial  person  "  called  the  corpora- 
tion has  a  continuity  of  existence  which  may  be  either 
for  a  limited  and  definite  period  of  years  or  for  an  indefi- 
nite time. 

A  partnership  is  a  business  organization  consisting  of 
two  or  more  individuals  who  contract  with  each  other  for 
the  transaction  of  a  certain  line  of  business.  The  organ- 
ization thus  created  terminates  with  the  death  of  either 
or  any  member  of  the  partnership,  and  the  obligations 
contracted  by  the  firm  in  carrying  on  its  business  become 
the  obligations  of  each  partner.  In  this  respect  the  part- 
nership differs  from  the  corporation  in  that  the  stock- 
holders of  the  corporation  are  usually  liable  only  to  the 
amount  of  their  investment  or  holdings  of  stock  in  the 
organization.  In  some  cases  the  stockholder  in  a  cor- 
poration may  be  liable  to  twice  the  amount  of  his  stock, 
but  that  is  not  usual. 

The  persons  composing  the  corporation  are  the  stock- 
holders, and  in  the  larger  railroad  and  industrial  corpora- 
tions of  to-day  they  may  number  thousands.  Inasmuch 
as  it  is  impossible  for  a  large  body  of  stockholders  per- 
sonally to  exercise  management  of  the  business  of  the 
corporation,  it  is  usual  for  them  to  have  annual  meetings 
at  which  a  limited  number  of  persons  are  elected  direct- 
ors. The  directors  thus  chosen  usually  elect  a  president, 
vice-president,  treasurer,  secretary,  and  various  other 
subordinate  officers,  whose  business  it  is  to  carry  on  the 
details  of  the  work  under  the  general  supervision  and 
control  of  the   directors.      The   subordinate   officers   are 


THE  RAILWAY  CORPORATION  AND  ITS  CHARTER     VI 

responsible  to  the  president;  he  is  under  the  control  of 
the  directors,  and  they  are  held  responsible  to  the  stock- 
holders, to  whom  they  report  at  the  regular  meetings. 

Corporations  are  of  two  general  kinds:  private  and 
public.  The  ordinary  manufacturing  concern  is  an  ex- 
ample of  the  former  kind,  while  the  city  or  borough  gov- 
ernment is  an  instance  of  the  latter.  The  railroad  cor- 
poration partakes  of  the  nature  of  both  kinds.  Legally 
it  is  to  be  classed  as  a  private  corporation,  but  the  serv- 
ices it  performs  are  of  a  public  nature.  The  railroad 
corporation  is  created  to  perform  a  service  which  in  some 
countries  is  in  the  hands  of  the  government,  and  which 
the  various  States  and  the  National  Government  in  this 
country  would  need  to  perform  if  the  railroad  corpora- 
tions were  not  created  by  the  Government  to  carry  on 
the  business  of  transportation. 

The  special  characteristics  of  the  railroad  corporation 
and  the  private  and  public  nature  of  the  services  it  per- 
forms are  well  given  by  Elliott  in. the  work  just  referred 
to.  He  says:  "  A  railroad  company  or  corporation  is  usu- 
ally regarded  as  a  private  corporation,  and  justly  so  as 
contrasted  with  a  strictly  public  corporation,  such  as  a 
city,  county,  township,  or  the  like  governmental  subdi- 
visions, but  it  is  not  a  private  corporation  in  the  strict 
sense  that  an  ordinary  business  corporation  is,  for  it  is 
charged  with  duties  of  a  public  nature  that  distinguish  it 
from  a  purely  and  strictly  private  corporation.  In  many 
respects  a  railroad  corporation  is  a  private  corporation 
in  all  that  the  term  implies,  but  in  other  respects  it  differs 
from  a  corporation  upon  which  no  public  duties  are 
imposed.  .  .  .  The  doctrine  of  Chief-Justice  Hale,  that 
^  when  private  property  is  affected  with  a  public  interest 
it  ceases  to  be  juris  privati  only,'  applies  to  a  railroad 
corporation.  It  is  not  to  be  understood,  however,  from 
the  fact  that  the  property  of  a  railroad  company  is  de- 


72  AMERICAN  RAILWAY  TRANSPOKTATION 

voted  to  a  public  use  or  '  affected  with  a  public  interest/ 
that  it  can  be  treated  as  a  public  corporation ;  on  the  con- 
trary, a  railroad  corporation  is  classed  as  a  private  cor- 
poration, and  its  strictly  private  rights  are  as  much  beyond 
legislative  control  as  are  the  rights  of  a  purely  private 
corporation." 

The  fact  that  a  railroad  is  a  quasi-public  corporation 
is  of  great  consequence  because  such  corporations  may  be 
subjected  to  very  detailed  regulation  by  the  state.  Being 
created  by  the  state  to  perform  a  service  which  the  state 
would  otherwise  be  obliged  to  carry  on,  the  corporation 
may  be  compelled  by  the  state  to  perform  the  service 
according  to  rules  prescribed  by  the  public  authority, 
whose  control  may  and  often  does  go  so  far  as  to  fix  the 
prices  which  the  corporation  may  charge  for  what  it  does. 
It  will  be  found  that  there  are  no  corporations  or  indi- 
viduals engaged  in  the  business  of  transportation  for  the 
public  whose  charges  are  not  subject  to  governmental 
regulation.  The  railroads  are  no  exception  to  this,  and 
all  railroad  corporations,  however  local  the  character  of 
their  business,  must  fix  their  charges  subject  to  the  power 
of  the  State  or  United  States  courts  to  pass  upon  the  reason- 
ableness of  the  exactions  required  of  the  public. 

The  United  States  courts  can  pass  upon  the  reasonable- 
ness of  all  railroad  rates  and  fares  fixed  by  the  State  legis- 
latures, and  this  is  true  because  a  railroad  corporation  is  a 
"  person  "  in  the  sense  in  which  that  term  is  used  in  the 
fourteenth  amendment  to  the  United  States  Constitution, 
where  it  is  stated  that  ^^  no  person  shall  be  deprived  of  life, 
liberty,  or  property  without  due  process  of  law."  The 
United  States  Supreme  Court  has  decided  in  a  number  of 
cases  that  the  word  "  person,"  as  used  in  this  amendment, 
applied  to  railroad  and  other  corporations.  It  is  further- 
more held  that  when  the  Constitution  guaranteed  to  every 
person  a  due  process  of  law  in  defense  of  his  life,  liberty. 


THE  RAILWAY  CORPORATION  AND  ITS  CHARTER       73 

and  property,  it  assured  him  the  right  of  appealing  from 
the  State  courts  to  the  United  States  courts  in  equity  pro- 
ceedings. 'No  State  can  deprive  persons  subject  to  its 
authority  of  their  property  without  due  process  of  law,  and 
if  a  State  fixes  so  low  a  charge  for  a  service  performed  by 
a  corporation  or  an  individual  as  to  deprive  such  "  person  " 
of  the  property  to  which  he  is  reasonably  entitled,  the 
person  has  the  right  of  having  the  reasonableness  of  the 
charge  passed  upon  by  the  United  States  courts.  That  is 
to  say,  under  the  fourteenth  amendment  the  property  of 
every  person  is  subject  to  the  protection  both  of  the  .State 
and  of  the  United  States  courts.  Such  being  the  case,  all 
transportation  companies,  whether  they  are  engaged  in 
interstate  traffic  or  in  traffic  confined  entirely  within  one 
State  or  within  a  small  section  of  a  State,  may  have 
the  reasonableness  of  the  charges  they  make  passed 
upon  by  a  State  or  Federal  court.  Contrariwise,  they 
can  exact  no  charges  whose  reasonableness  may  not  be 
tested  in  one  of  those  courts  by  the  interested  shipper  or 
passenger. 

The  railroad  company  derives  its  powers  from  a  char- 
ter granted  to  it  by  the  State.  In  our  country  most 
railroad  and  other  charters  are  derived  from  the  State 
governments,  but  the  United  States  has  the  authority  to 
incorporate  railroad  companies  and  grant  them  charters; 
indeed,  in  the  case  of  some  of  the  Pacific  railroads  the 
charters  were  derived  from  the  United  States.  Incor- 
poration may  take  place  either  by  a  special  act  of  the 
Legislature  of  the  State,  or  in  accordance  with  general 
laws.  Formerly  nearly  all  charters  were  special  acts  of 
the  legislature,  but  that  practise  led  to  corruption  and 
favoritism,  and  most  States  have  enacted  general  incor- 
poration laws.  Indeed  the  constitutions  of  many  States 
prohibit  the  granting  of  special  charters. 

The  railway  charters  granted  to  the  companies  that 


74  AMERICAN  RAILWAY  TRANSPORTATION 

constructed  the  first  railroads  in  this  country  were  very 
similar  to  the  charters  that  had  previously  been  granted 
to  the  companies  that  had  constructed  turnpikes  and  toll- 
roads;  indeed,  it  was  supposed  at  the  beginning  of  rail- 
road construction  that  the  railroad  was  merely  an  im- 
proved highway  upon  which  any  individual  might  run 
his  own  car.  A  few  years'  experience  showed  that  it  was 
not  practicable  to  manage  a  railroad  in  that  way,  and 
that  it  was  necessary  for  the  business  done  over  the  road 
to  be  under  one  centralized  management.  Railroad  char- 
ters contained  carefully  drawn  provisions  in  regard  to 
the  tolls  that  were  to  be  charged  individual  users  of  the 
road.  Some  effort  was  made  to  protect  the  public  inter- 
ests by  stipulating  that  when  the  earnings  received  by 
the  railroad  companies  should  exceed  a  fixed  annual  per- 
centage the  State  might  reduce  the  charges.  In  general, 
however,  the  charters  granted  in  this  country  afforded 
very  inadequate  protection  to  the  public.  Our  experi- 
ence in  this  regard  differed  from  that  of  European 
countries,  where  the  state  took  special  pains  in  granting 
its  charters  to  provide  for  the  detailed  regulation  of  the 
service  to  be  performed.  In  this  country  the  States  were 
so  desirous  of  securing  railroads  that  very  few  exactions 
were  imposed  upon  any  company  that  was  willing  to 
undertake  a  work  deemed  to  be  of  such  benefit  to  the 
State  and  to  the  general  public. 

It  will  be  found  that  this  lax  and  indiscriminate  char- 
tering of  railway  companies  was  responsible  in  part  for 
numerous  abuses  in  the  railway  service.  In  course  of 
time  "  the  railway  question ''  came  to  occupy  a  very 
prominent  place  in  public  discussions,  and  thirty  years 
ago  the  States  undertook  in  a  vigorous  way  to  assume  a 
degree  of  regulation  of  the  railroads,  for  which  they 
should  have  made,  but  did  not  make,  provision  in  the 
charters  they  had  previously  granted. 


THE  RAILWAY  CORPORATION  AND  ITS  CHARTER     Y5 

In  most  foreign  countries  the  railroads  are  chartered 
by  the  central  government,  but  in  our  country  each  one 
of  the  States  and  Territories  has  and  exercises  the  au- 
thority of  incorporating  railway  companies.  If  the  laws 
of  the  several  States  regarding  incorporation  were  uni- 
form, and  if  the  provisions  in  the  charters  were  alike  or 
nearly  so,  this  practise  would  not  be  disadvantageous; 
but  as  a  matter  of  fact  the  laws  and  practises  are  not 
uniform,  some  States  being  much  stricter  than  others. 
This  fact  has  made  the  problem  of  the  regulation  of 
transportation  by  the  several  States  a  more  difficult  one 
than  it  otherwise  would  have  been,  and  is  one  of  the  rea- 
sons why  it  is  desirable  for  the  United  States  Govern- 
ment to  exercise  its  power  to  regulate  commerce  among 
the  several  States. 

The  railroad  companies  to-day  are  large  and  powerful 
organizations.  The  Pennsylvania  system  of  railroads, 
for  example,  comprises  many  corporations,  but  they  are 
practically  under  one  management.  The  people  who 
manage  the  Pennsylvania  interests  have  more  than 
$1,000,000,000  under  their  control,  and  there  are  other 
railway  systems  in  the  United  States  nearly  as  large  as 
the  Pennsylvania.  The  capital  stock  of  each  of  the  large 
railway  corporations  is  distributed  among  a  large  number 
of  owners.  According  to  the  report  of  the  Industrial 
Commission,  "  the  share-owners  of  the  eastern  trunk 
lines  are  reported  to  number  99,826.  ...  It  was  esti- 
mated in  1897,  by  the  late  George  R.  Blanchard,  that 
the  total  number  of  holders  of  stocks  and  bonds  of  the 
railroads  of  the  United  States  was  1,250,000,  including 
950,000  stockholders  and  300,000  bondholders."  A  me- 
diunl-sized  railroad  company,  such  as  the  Illinois  Central, 
illustrates  in  an  excellent  manner  the  distribution  of 
ownership  among  the  stockholders.  In  that  corporation 
there  are  5,684  people  each  owning  less  than  $10,000  of 


Y6  AMERICAN  RAILWAY  TRANSPORTATION 

stock.  Fully  half  of  the  shares  are  owned  in  lots  of 
$50,000  and  less,  the  average  of  all  holdings  being  $10,- 
385.  The  last  report  of  the  Pennsylvania  Railroad  Com- 
pany— the  one  for  1902 — states  that  there  are  29,000 
stockholders  in  the  company. 

Although  the  railroad  corporations  are  becoming 
larger  every  year  and  the  amount  of  railroad  securities 
is  increasing,  there  is,  none  the  less,  a  remarkably  wide 
distribution  of  ownership.  The  control  of  railway  prop- 
erties is  coming  more  and  more  into  the  hands  of  a  small 
number  of  groups  of  capitalists,  but  each  group  of  cap- 
italists comprises  a  multitude  of  individual  owners,  the 
concentration  of  control  being  the  result  of  the  delegation 
of  authority  to  the  limited  number  of  financial  leaders 
in  whom  investors  have  especial  confidence.  It  is  not 
necessary  for  an  individual  to  own  a  majority  of  the 
stock  in  a-  corporation  to  obtain  the  practical  control. 
As  the  corporations  become  larger  and  the  stockholders 
become  more  widely  distributed,  control  by  the  individ- 
uals or  groups  of  individuals  holding  a  minority  of  the 
shares  becomes  easier. 

Most  of  the  money  used  in  the  construction  of  rail- 
roads in  this  country  was  obtained  by  borrowing  money. 
The  bondholders  furnished  most  of  the  capital  used  in 
railroad  construction.  When  times  are  good  and  busi- 
ness active,  railroad  companies  have  no  difficulty  in  pay- 
ing the  interest  on  their  debts;  but  when  times  are  bad 
and  business  dull,  many  corporations  in  the  past  have 
found  their  income  insufficient  to  meet  their  current  obli- 
gations. When  a  corporation  is  unable  to  make  the  pay- 
ments it  has  agreed  to  make  it  is  called  insolvent,  and 
the  people  to  w^hom  the  corporation  is  in  debt — that  is, 
the  bondholders  or  those  from  whom  equipment  has 
been  purchased — may  request  a  court  to  take  from  the 
officers  of  the  railroad  the  management  of  the  company 


THE  RAILWAY  CORPORATION  AND  ITS  CHARTER     YY 

until  the  road  again  becomes  solvent.  When  the  court 
thus  takes  control  of  a  road  in  the  interests  of  the.  cred- 
itors, it  takes  the  place  of  the  corporation  for  the  time 
being.  If  the  court  finds  that  the  road  can  be  put  upon 
a  paying  basis,  the  court  will  keep  the  road  running  until 
the  financial  troubles  are  past.  If,  however,  the  court 
finds  the  railroad  to  be  hopelessly  insolvent  it  proceeds 
to  sell  out  the  property  and  to  pay  over  to  the  creditors 
the  sum  received  from  the  sale.  On  some  occasions  rail- 
road corporations,  foreseeing  the  approach  of  financial 
difficulties,  have  besought  the  courts  to  assume  the  man- 
agement of  their  properties  in  order  that  the  officials  of 
the  corporation  might  shield  themselves  from  the  conse- 
quences of  their  own  acts.  Such  practises,  however,  are 
not  justifiable,  and  in  time  will  probably  be  made  impos- 
sible by  laws  regulating  the  management  of  insolvent 
corporations. 

REFERENCES    EOR    FURTHER    READIiq-Q 

Meyer,  B.  H.  Railway  Regulation  under  Foreign  and  Domestic 
Laws.  1901.  [A  report  prepared  for  the  Industrial  Commission 
and  published  in  the  report  of  that  commission,  vol.  ix,  pp.  897- 
1004.     This  contains  a  good  discussion  of  railroad  charters.] 

Those  interested  in  the  study  of  railroad  law  will  find  the  subject 
fully  covered  in  the  standard  treatises  by  Elliott,  Redfield,  and 
others. 


CHAPTER    YU 

RAILWAY    CAPITAL 

The  shares  or  certificates  of  stock  issued  by  a  cor- 
poration represent  the  investment  made  by  the  stock- 
holders who  are  the  owners  of  the  company,  but  the 
property  of  the  railroad  company  is  usually  obligated  to 
people  who  have  loaned  money  to  the  corporation  or  who 
have  made  temporary  advances  of  material  or  labor  on 
credit.  These  temporary  advances  represent  the  com- 
pany's "  current  liabilities."  Persons  loaning  money  to 
a  corporation  receive  a  bond  or  certificate  of  the  com- 
pany's indebtedness  to  them,  and  these  bonds  are  accom- 
panied by  a  mortgage  which  enables  the  bondholders  to 
take  possession  of  a  part  or  all  of  the  property  of  the 
company,  if  it  does  not  pay  the  interest  and  principal 
of  the  loan,  according  to  the  terms  of  the  contract  speci- 
fied in  the  bond.  The  bonds  represent  the  company's 
funded  debt. 

Strictly  speaking,  the  capital  of  a  corporation  com- 
prises only  the  stock  that  has  been  issued;  but  in  the  case 
of  the  railroads  of  the  United  States  it  is  customary  to 
include  bonds  as  well  as  stocks  in  the  capital.  The  reason 
for  this  is  that  the  issue  of  bonds  has  been  the  means  by 
which  a  large  share,  indeed  the  greater  portion,  of  the 
funds  was  secured  for  the  construction  of  the  railroads. 
The  bondholders  have  frequently  created  the  property 
against  which  their  mortgages  lie.  The  full  amount  of 
78 


RAILWAY  CAPITAL  T9 

the  investment  can  be  ascertained  only  by  taking  account 
of  both  the  stock  and  the  bonds  or  funded  debt.  The 
current  liabilities  of  the  railroad  companies  are  not  now 
counted  a  part  of  the  capitalization,  although  they  were 
so  included  in  the  statistics  compiled  by  the  United  States 
Interstate  Commerce  Commission  until  1896,  when  it  was 
decided  that  only  regular  investments  should  be  consid- 
ered as  capital. 

Various  classes  of  bonds  are  issued  by  railroad  compa- 
nies to  secure  capital,  but  they  all  fall  under  one  or  the 
other  of  two  heads:  they  are  either  mortgage  bonds  or 
debentures.  The  holder  of  the  mortgage  bond  has  a 
lien  on  some  specific  and  tangible  property  of  which  he 
can  take  possession  if  the  interest  and  principal  of  the 
loan  are  not  paid.  The  mortgage  may  cover  rolling- 
stock,  terminals,  or  the  entire  physical  property  of  the 
borrowing  company — i.  e.,  the  creditor  may  hold  equip- 
ment bonds,  terminal  bonds,  or  a  general  or.  "  blanket " 
bond.  Moreover,  the  payment  of  these  bonds  may  be 
secured  by  a  first  mortgage  or  by  a  second,  third,  or 
fourth  mortgage — the  holders  of  all  but  the  first  mort- 
gage being  called  junior  lienors. 

Debenture  bonds  may  represent  a  claim  on  the  income 
derived  by  the  borrowing  railroad  company  from  speci- 
fied sources,  or  they  may  rest  on  no  other  security  than 
the  credit  of  the  company.  Whatever  the  class  of  bond, 
the  claims  of  the  bondholder  precede  those  of  the  stock- 
holder. 'No  dividend  can  be  declared  on  the  stock  until 
the  current  interest  charges  have  been  met  and  the  prin- 
cipal of  matured  bonds  has  been  paid.  In  England  rail- 
road bonds  are  of  the  debenture  kind,  but  in  the  United 
States  creditors  usually  prefer  the  security  of  a  mort- 
gage. Income  bonds  are  sometimes,  but  not  extensively, 
issued  in  our  country. 

On  the  30th  of  June,  1901,  the  total  capital  of  Amer- 


80  AMERICAN   RAILWAY  TRANSPORTATION 

ican  railroads  amounted  to  $11,688,177,991/  of  whicli 
total  about  half — $5,806,597,104 — consisted  of  stocks, 
and  $5,881,580,887  of  funded  debt.  During  the  decade 
ending  in  1900  there  was  an  increase  of  25  per  cent  in  the 
total  of  stocks  and  bonds  of  American  railroads.  The 
growth  of  mileage  was  18  per  cent,  considerably  less 
than  the  addition  made  to  capital.  Stocks  increased 
more  rapidly  than  bonds.  In  1890  stocks  comprised  46.73 
per  cent  of  the  total  capital,  and  in  1900,  50.87  per  cent. 
Until  1895  the  amount  of  bonds  issued  exceeded  the 
stock,  but  because  of  the  business  depression  at  that  time, 
many  roads  had  become  insolvent  and  found  it  necessary 
to  reduce  their  fixed  charges  by  substituting  stock  for 
bonds.  It  seems  probable  that  railroad  companies  will 
in  the  future  make  use  of  stocks  more  than  bonds  to 
secure  additional  funds,  because  a  strong  road  having  an 
assured  traffic  can  find  a  ready  market  for  its  stocks. 
Since  1900,  however,  bonds  have  been  substituted  for 
stocks  in  the  purchase  of  one  road  by  another,  but  this 
is  probably  a  temporary  tendency  incidental  to  the  proc- 
ess of  consolidation  now  in  progress.  The  large  compa- 
nies resulting  from  combinations  will  doubtless  secure 
additional  capital  in  the  future  more  largely  from  the  sale 
of  stocks  than  from  the  issue  of  bonds. 

The  capitalization  per  mile  of  railroad  in  the  United 
States  averaged  $61,528  in  1901.  There  are  great  differ- 
ences in  the  various  roads  as.  regards  the  amount  of  capi- 
tal per  mile  of  line,  some  having  only  $10,000  of  capital 
per  mile,  while  others  have  from  $300,000  to  $500,000. 
A  single-track  road  across  a  level  section  of  a  new  por- 
tion of  the  country,  where  the  right  of  way  and  terminal 
facilities  can  be  cheaply  secured,  may  be  constructed  for 

^  Of  this  sum  the  railroad  companies  in  their  corporate  capacity- 
owned  $1,796,667,211  of  stocks  and  $468,830,698  of  bonds,  a  total  of 
$2,205,497,909  of  stocks  and  bonds. 


RAILWAY  CAPITAL  81 

a  small  fraction  of  what  it  costs  to  build  lines  over  moun- 
tains or  between  large  cities  in  populous  regions,  like 
the  eastern  United  States  or  western  Europe,  where  real- 
estate  values  are  high.  Cost,  however,  is  only  one  of  the 
causes  accounting  for  differences  in  capitalization.  Varia- 
tions in  capitalization  among  different  companies  arise 
from  the  fact  that  some  systems,  like  the  Pennsylvania, 
Illinois  Central,  and  others  similarly  managed,  have  is- 
sued stocks  and  bonds  in  a  conservative  rather  than  a 
speculative  spirit;  whereas,  some  companies,  notably 
those  owning  most  of  the  Pacific  roads,  formerly  pur- 
sued a  policy  of  capitalizing  their  properties  as  largely 
as  possible. 

The  average  capitalization  of  the  railroads  of  Great 
Britain  is  over  $260,000  per  mile,  or  more  than  four  times 
the  average  for  the  United  States.  This  difference  is  due 
to  several  causes.  The  British  companies  had  larger  ex- 
penses for  right  of  way  and  terminals,  and  they  built 
their  roads  more  solidly  than  was  customary  in  the  United 
States.  The  British  companies,  unlike  most  of  those  in 
America,  charge  practically  all  improvements  to  capital 
and  not  to  revenue.  Some  American  companies  expend 
more  of  their  earnings  for  betterments  and  new  con- 
struction than  they  distribute  in  dividends. 

The  capital  of  American  railroads  is  increasing,  partly 
from  the  fact  that  new  lines  are  being  constructed,  but 
more  because  existing  roads  are  becoming  of  greater 
value  with  the  progress  of  the  country  and  the  growing 
volume  of  rail  traffic.  To  some  extent  this  enhancing 
value  of  railroad  property  is  being  capitalized  by  the 
issue  of  new  securities.  During  the  year  1900,  for 
instance,  when  there  was  a  very  large  increase  in  capital, 
amounting  to  $457,000,000,  there  was  probably  not  over 
$120,000,000  used  in  building  the  4,051  miles  of  new 
roads;  the  remaining  $337,000,000  represented  a  higher 
7 


82  AMERICAN  RAILWAY  TRANSPORTATION 

capitalization  of  roads  previously  constructed.  The 
recent  increase  in  capital,  however,  does  not  equal  the 
total  growth  in  the  value  of  railroad  property.  Many 
stocks  formerly  issued  have  become  more  valuable  dur- 
ing the  past  few  years. 

In  the  case  of  many  American  railroads  built  after 
1850,  particularly  in  the  Western  and  Southern  States, 
the  stock  represented  very  little  investment.  Most  of 
the  money  used  in  construction  was  secured  by  the  sale  of 
bonds,  the  stock  being  sold  cheaply  or  given  as  a  bonus  to 
the  purchasers  of  bonds.  The  stock  thus  cheaply  secured 
gave  investors  the  possibility  of  large  gains  through  an 
increase  in  the  value  of  the  stocks,  should  the  railroad 
develop  a  large  traffic.  Stock  sold  by  a  company  for 
less  than  its  par  or  face  value  is  called  "  watered  stock," 
the  amount  of  water  in  the  stock  being  the  difference 
between  its  selling  value  and  its  par  value.  The  stock 
of  many  American  railroads  has  been  largely  watered. 
One  evidence  of  this  is  the  fact  that  in  the  highly  pros- 
perous year  of  1900  less  than  half  the  railroad  stock  of 
this  country  received  any  dividend,  and  in  1901  only 
about  51  per  cent  received  dividends.  In  1897  only  28 
per  cent  of  the  stock  received  dividends.  The  diagram 
shows  for  the  decade  1890-1900  the  total  amount  of  rail- 
road stocks  and  bonds,  ^  the  amount  of  stocks  receiving 
dividends,  and  the  capitalization  and  funded  debt  per 
mile  of  line. 

Some  stocks  on  which  no  dividends  are  received  may 
have  a  selling  value  for  speculative  purposes,  and  others 
from  which  no  income  is  now  obtained  may  represent  a 
real,  although  unfortunate,  investment;  but  in  general, 
non-dividend  stocks  stand  for  water  instead  of  real  invest- 
ment. Moreover,  many  stocks  receive  small  dividends 
and  are  quoted  on  the  market  much  below  par.  They 
also  consist  largely  of  water.     It  is  thus  evident  that 


1890 
1891 
1892 
1893 
1894 
1895 
1896 
1897 
1898 
1899 
J  900... 

11,500 
11,000 

iond|^ 

Sflcf 

^^^^ 

-S^ 

»n^ 

^<^^unded 

Oeb^ 

^^  - 

10,000 

9,500 

9,000 

(/)  6,000 
a: 

J  5,500 

_J 

.05^ 

^^ 

^^ 

■ 

1 

^^ 



4,500 
li. 

°  4,000 

CO 

z 
o 

Ij  2,800 

_J 

S  2,600 

2,400 

2,200 

2,000 

1,800 

1,600 

1,400 

1,200 

Capital 

;:iiii 

. 

" 

Bonds 

1 

/ 

/ 

/ 

/ 

^rnount 

of 

Stock 

f^s,  ■ 

/' 

^ 

^l 

Divide 

nds. 

^ 

^ "" 

^"^ 

-^' 

and 

— owr»®^ 

— by 

Railroad 

"'^-- 

^^oo^^ 

1 

$70,C00 
65,000 
60,000 
55,000 
50,000 
45,000 

.  40,000 
35,000 
30  000 

Stocks 

and 

Bo/ids 

Per 

Mile 

of        Li 

le. 

Funded 

Debt 

per      M 

lie      of 

Line. 

25,000 

"sVocV 

per   "'Mi|e""of 

Line. 

American  Eailway  Capitalization,  Dividends,  and  Funded  Debt, 
1890-1900. 


84  AMERICAN  RAILWAY  TRANSPORTATION 

American  railroad  stocks  have  a  par  value  greater  than 
the  real  capital  received  by  the  companies  issuing  the 
stocks.  This  is  not  true  of  some  railroad  companies  which 
have  closely  restricted  the  issue  of  stocks  and  have  sold 
them  at  or  near  or  above  par.  Nor  is  it  equally  true  of 
all  sections  of  the  United  States,  there  being  less  fictitious 
value  in  the  stock  of  the  N^ew  England  roads  than  in 
those  of  any  other  part  of  the  country.  The  Middle 
Western  States,  comprised  in  Groups  VI  and  VII  of  the 
Interstate  Commerce  Commission's  report,  follow  New 
England,  while  the  railroads  in  the  Pacific  and  South- 
western groups  have  the  greatest  showing  as  regards  the 
amount  of  water  in  their  stock.      (See  map.) 

These  facts  are  corroborated  by  an  investigation 
recently  made  by  the  Interstate  Commerce  Commission. 
In  February,  1901,  the  United  States  Senate  called  upon 
the  Interstate  Commerce  Commission  for  a  statement 
comparing  the  par  and  market  values  of  all  classes  of 
railroad  securities  during  the  year  ending  June  30,  1900. 
The  report,  made  by  the  commission  February  24,  1903, 
indicates  that  the  $10,911,968,970  of  securities  (par 
value)  whose  market  values  could  be  ascertained,  had  a 
total  average  market  value  in  1900  of  $8,351,103,523; 
but  the  commission  is  careful  to  point  out  that  the  figures 
are  only  approximately  correct.  There  were  securities 
with  a  par  value  of  $812,066,859  whose  selling  value 
could  not  be  ascertained.  Moreover,  the  commission 
calls  attention  to  the  fact  that  the  prices  paid  for  the 
securities  bought  and  sold  can  not  safely  be  accepted  as 
the  measure  of  the  value  of  the  securities  not  on  the 
market;  and  also  that  the  values  of  the  securities  listed 
on  the  stock-markets  are  not  necessarily  "  a  just  measure 
for  the  valuation  of  the  property."  However,  in  spite 
of  the  recognized  limitations  of  the  facts  presented  in 
the  commission's  report,  the  data  there  presented  indi- 


86  AMERICAN  RAILWAY  TRANSPORTATION 

cate  tliat  there  was  in  1900  a  considerable  difference 
between  the  market  and  par  values  of  railroad  securities. 
Market  values,  of  course,  depend  mainly  on  the  income 
obtained  from  the  securities;  but  if  stocks  and  bonds  had 
uniformly  been  sold  at  or  near  par,  the  comparison  of 
par  and  market  values  in  1900  would  have  shown  the 
market  values  to  have  been  greater  than  the  par  values. 

In  addition  to  the  motive  for  stock  watering  cited 
above — the  distribution  of  stock  among  bond  purchasers 
gratis  or  at  a  low  price — there  are  three  other  incentives 
to  the  issue  of  large  amounts  of  stock.  In  financing 
corporations  it  has  been  found  that  greater  profits  can  be 
secured  from  the  sale  of  large  amounts  of  stocks  and 
bonds  at  a  low  figure  than  from  the  sale  of  small  issues 
at  a  high  price.  Investors  prefer  securities  affording 
opportunities  for  speculative  gains.  Ten  million  dollars 
of  3-per-cent  bonds  will  sell  for  more  than  $6,000,000  of 
5-per-cent  bonds,  although  the  income  at  the  beginning 
would  be  the  same  from  each  investment.  Another  motive 
for  stock  watering  is  the  desire  to  capitalize  the  future 
growth  in  the,  earnings  and  value  of  the  property;  the 
large  volume  of  stock  is  not  issued  by  the  company  for 
immediate  sale,  but  to  be  held  by  the  individuals  com- 
posing the  company  in  order  that  they  may  have  an 
ample  basis  for  the  distribution  of  future  profits  which 
they  anticipate  will  be  large.  This  plan  of  large  capitali- 
zation also  enables  the  company  to  conceal  from  the 
general  public  the  real  amount  of  its  profits.  Large 
profits  are  secured  from  low  rates  of  dividends  and  from 
securities  having  a  low  valuation,  and  this  is  advantageous 
from  the  investor's  standpoint  in  a  business  such  as  rail- 
road transportation,  where  the  charges  for  services  are 
subject  to  public  regulation. 

The  men  who  "  promote  "  and  underwrite  new  cor- 
porations or  the  consolidation   of  competing  companies 


RAILWAY  CAPITAL  Si 

have  derived  special  gains  from  the  device  of  stock  water- 
ing. The  business  of  the  promoter  is  to  organize  a  cor- 
poration or  a  combination  of  corporations  and  to  induce 
those  affected  to  agree  to  the  conditions  of  organization. 
If  several  companies  are  to  be  united,  the  promoter  first 
secures  from  each  company  an  option  for  purchase  at  a 
fixed  sum;  and  then  he  fixes  the  capital  of  the  new  con- 
solidated corporation  at  a  sum  much  in  excess — usually 
about  double — the  total  capital  of  the  constituent  con- 
cerns. The  several  companies  are  paid  in  cash  or  with 
preferred  stock,  and  more  or  less  common  stock  is  usually 
thrown  in  as  a  bonus.  A  large  share  of  the  common 
stock  is  retained  by  the  promoter  to  remunerate  him  for 
his  services.  The  promoter  is  usually  paid  in  watered 
stock,  from  the  sale  of  which  his  profits  are  derived. 

To  insure  a  sale  for  the  stock,  a  banking-house  is 
secured  to  underwrite  the  stock  of  the  new  company. 
The  banker  agrees  to  sell  a  certain  amount  of  stock  at  a 
fixed  price,  or,  failing  to  do  so,  to  take  the  stock  he  does 
not  dispose  of.  The  underwriter  sometimes  guarantees 
the  bonds  of  the  new  company.  His  services  are  of  great 
importance  to  the  promoter  and  the  company,  and  he 
receives  large  pay,  either  in  the  form  of  cash  or  of  stock. 
In  many  instances  the  promoter  and  the  underwriter  are 
the  same  individual  or  business  organization. 

The  methods  by  which  stock  watering  may  be  accom- 
plished are  numerous.  A  generation  ago,  when  the  stand- 
ards of  railroad  financiering  were  lower  than  they  now 
are,  the  securities  of  a  railroad  were  sometimes  increased 
at  the  will  of  speculators  for  the  purpose  of  manipulating 
the  market.  The  history  of  the  Erie  Railroad  and  other 
transportation  corporations,  when  in  the  hands  of  spec- 
ulators and  unscrupulous  operators,  affords  conspicuous 
examples  of  fraudulent  practises.^ 

^  Cf.  Chapters  in  Erie,  by  Charles  Francis  Adams, 


88  AMERICAN  RAILWAY  TRANSPORTATION 

Another  fraudulent  method  of  dealing  with  stocks 
and  bonds  much  in  vogue  between  1860  and  1880  con- 
sisted of  awarding  large  amounts  of  securities  to  con- 
struction companies  which  were  composed  of  officials  of 
the  railroad  corporation.  One  of  the  most  noted  construc- 
tion companies  of  this  kind,  though  only  one  of  many, 
was  the  Credit  Mobilier,  to  which  the  contracts  for  build- 
ing the  Union  Pacific  Railroad  were  let.^  This  method 
of  defrauding  the  stockholders  not  in  the  ring  of  inter- 
ested ofiicials  has  a  parallel  in  the  exorbitant  payment 
of  securities  to  the  syndicate  of  bankers  that  finances  the 
enterprise  of  constructing  a  new  road  or  assumes  the  task 
of  reorganizing  an  insolvent  company.  According  to  the 
report  of  the  Industrial  Commission,  "  the  original  South- 
ern Pacific  cost  actually  only  $6,500,000;  although  it 
is  a  matter  of  record  that  $15,000,000  was  paid  to  a 
construction  company,  and  the  bankers'  syndicate,  which 
financed  the  road,  received  $40,000,000  in  securities,  or 
an  average  of  $6  in  bonds  and  stock  for  each  dollar 
of  actual  cost."  These  methods  of  stock  watering  are 
not  characteristic  of  railroad  construction  and  financier- 
ing to-day,  but  they  have  not  been  entirely  eliminated. 
Stock  watering  is  accomplished  at  the  present  time  in  a 
variety  of  ways.  One  method  is  to  distribute  a  new  issue 
of  stocks  among  the  stockholders  either  as  a  bonus  or  to  sell 
it  to  them  below  par  or  for  less  than  the  price  which  could 
be  obtained  in  the  open  market.  A  railroad  is  sometimes 
in  the  fortunate  position  of  having  a  revenue  sufficient  to 
pay  large  dividends  and  to  add  largely  to  the  undistributed 
surplus.  By  increasing  the  stock  the  rate  of  profits  or 
dividends  can  be  kept  at  a  lower  figure,  and  any  un- 
needed  surplus  reserve  can  be  turned  over  to  the  stock- 
holders. 

'  See  histories  of  the  Union  Pacific  by  Davis  and  by  White;   also 
The  Credit  Mobilier  by  Crawford, 


RAILWAY  CAPITAL  89 

Railroad  companies  having  an  undesirably  small  rev- 
enue sometimes  add  to  their  funded  debts,  and  thus  to 
their  capitalization,  bj  converting  current  liabilities,  such 
as  bills  payable,  wages  and  salaries  due,  into  interest- 
bearing  scrip.  This  kind  of  financiering  is  a  temptation 
to  which  companies  are  apt  to  yield  during  protracted 
periods  of  business  depression,  but  it  violates  the  prin- 
ciple that  current  expenses  should  be  paid  from  current 
earnings. 

The  retirement  of  bonds  by  the  issue  of  stocks  much 
in  excess  of  the  amount  of  the  bonds  canceled  is  resorted 
to  by  some  companies.  This  is  done  for  two  reasons.  By 
reducing  the  funded  debt,  the  fixed  charges  are  lessened, 
and  the  difficulties  of  weathering  financial  depressions 
are  made  lighter.  Similarly  the  large  volume  of  stock 
is  useful  in  times  of  prosperity,  because  it  affords  an 
ample  basis  for  the  distribution  of  large  profits  in  divi- 
dends at  a  low  rate  per  cent  on  the  capitalization.  In 
the  reorganization  of  insolvent  companies,  the  fixed 
charges  are  frequently  reduced  by  the  substitution  of 
stocks  for  bonds. 

The  consolidation  of  railroad  companies  is  frequently 
accompanied  by  a  large  increase  in  capitalization.  This 
has  been  notably  the  case  with  the  consolidations  that 
have  taken  place  since  1898,  and  has  been  even  more 
characteristic  of  the  mergers  of  street-railways  than  of 
trunk-line  railroads.  In  the  recent  purchase  of  the  Chi- 
cago, Burlington  and  Quincy  by  the  Great  Northern 
and  ^N^orthern  Pacific  interests,  and  in  the  transfer  of  the 
Lake  Shore  to  the  New  York  Central,  the  stocks  of  the 
selling  companies  were  exchanged  for  bonds  of  the 
purchasers,  $2  of  bonds  being  given  for  each  dollar  of 
stock.  The  Northern  Securities  Company,  organized 
in  1901  to  hold  the  securities  of  the  Great  Northern, 
Northern   Pacific,    and    Burlington    systems,    exchanged 


90  AMERICAN  RAILWAY  TRANSPORTATION 

$180  of  its  stock  for  $100  of  Great  Northern  stock  and 
$115  of  its  stock  for  $100  of  Northern  Pacific  stock. 
Competing  railroads  are  consolidated  for  the  purpose  of 
stopping  the  expenses  due  to  competition,  and  to  intro- 
duce a  more  economical  administration  of  the  properties. 
These  anticipated  savings  are  usually  capitalized  in  ad- 
vance oj  the  issue  of  additional  securities. 

There  are  differences  of  opinion  as  to  whether  the 
watering  of  stock  should  be  practised  by  railroad  compa- 
nies or  permitted  by  the  Government.  There  is  little 
doubt  that  the  practise  gives  greater  scope  for  specula- 
tion, some  forms  of  which  are  decidedly  objectionable. 
The  company  with  a  large  capitalization  and  a  conse- 
quently low  rate  of  dividends  has  a  plausible  reason  for 
opposing  the  payment  of  higher  wages  to  its  employees 
and  for  objecting  to  a  reduction  of  the  rates  and  fares 
charged  the  public.  The  actual  relation  of  capitalization 
to  railway  charges  is  difficult  to  determine,  and  the  discus- 
sions of  the  subject  show  a  difference  of  views  among  stu- 
dents of  transportation,  but  there  is  no  doubt  that  a  rail- 
road company  whose  rate  of  dividends  is  small  is  Ifess  liable 
to  have  its  charges  reduced  by  public  authority  than  it 
would  be  if  its  regular  dividends  showed  a  high  rate  of 
profits.  The  excessive  watering  of  stock  is  certainly 
opposed  to  conservative  railroad  financiering.  The  best 
managed  companies  have  carefully  limited  the  amount 
of  their  securities,  both  bonds  and  stocks.  The  promoter 
and  speculator  find  their  opportunity  in  the  practise  of 
watering  stock,  but  the  general  investor  and  the  respon- 
sible managers  of  railroad  properties  are  safer  under  a 
policy  of  restricted  capitalization. 

The  manner  and  extent  to  which  railroad  capital 
should  be  limited  by  public  regulation  may  be  understood 
better  after  considering  the  basis  which  should  be  accepted 
in  determining  whether  a  railroad  is  or  is  not  overcapital- 


RAILWAY  CAPITAL  91 

ized.  Diffetent  views  obtain  as  to  the  proper  basis  for 
capitalizing  a  railroad.  Some  persons  claim  that  the 
original  cost  of  the  property  and  the  money  actually 
invested  at  the  beginning  and  subsequently  should  deter- 
mine the  amount  of  capital  issued.  Others  hold  that  the 
earnings  of  a  railroad  afford  the  true  measure  of  the 
volume  of  capital  that  may  safely  be  adopted,  while  some 
persons  consider  the  true  basis  of  capitalization  at  any 
given  time  to  be  the  cost  of  reproducing  the  railroad — 
the  sum  it  would  require  to  obtain  the  right  of  way, 
construct  the  line,  and  acquire  the  terminals. 

The  most  natural  supposition  is  that  railroad  capital 
should  represent  the  cost  of  the  property,  the  money 
actually  invested,  that  stocks  and  bonds  should  be  issued 
only  for  money  paid  in,  and  that  their  par  value  should 
approach  as  closely  as  practicable  their  actual  value  at 
the  time  of  issue.  This  theory  is  not  altogether  satis- 
factory, however,  because  some  roads  have  cost  more 
than  they  ought  on  account  of  inefficient  or  fraudulent 
management,  or  because  they  were  constructed  at  a  time 
when  labor  was  scarce,  materials  expensive,  and  interest 
rates  high.  Under  such  conditions  cost  gives  a  capitali- 
zation higher  than  would  be  just  to  the  public  at  the 
present  time.  Likewise,  some  roads  have  been  very  eco- 
nomically built,  and  have  been  managed  with  such  abil- 
ity and  honesty  as  to  have  had  their  value  greatly 
increased.  Business  ability  should  have  its  rewards, 
and  a  rule  regarding  capitalization  which  would  not 
give  men  the  results  of  their  efforts  would  be  neither 
just  to  them  nor  in  harmony  with  the  best  interests  of 
the  public. 

The  basis  for  capitalization  preferred  by  the  men 
interested  in  railroad  management  is  the  earning  capacity 
of  the  property.  The  selling  value  of  the  railroad  is  de- 
termined by  its  earnings,  and  that  its  selling  value,  present 


92  AMERICAN  RAILWAY  TRANSPORTATION 

and  probable,  may  justly  be  fully  capitalized,  is  the  con- 
tention of  those  who  accept  this  theory.  This  plan  of 
capitalization  enables  a  railroad  company  to  obtain  money 
from  investors  more  readily,  since  many  persons  prefer 
to  buy  securities  at  a  discount  because  of  the  chance  of 
securing  profits  from  the  advance  in  the  price  of  the 
securities  with  the  growth  of  the  earnings  of  the  rail- 
road. There  are  certain  objections  to  this  theory  of 
capitalization,  one  being  that  the  excessive  capital  conceals 
real  profits,  and  makes  it  difficult  for  the  men  who  serve 
the  company  or  the  public  served  by  the  corporation  to 
determine  whether  the  men  who  own  the  property  are 
receiving  more  or  less  than  a  just  return  on  their  invest- 
ment, whether  the  company,  the  employees,  and  the  public 
are  sharing  equitably  in  the  benefits.  To  permit  a  railroad 
company  to  secure  the  greatest  possible  earnings  from 
the  public,  and  to  cover  up  the  relation  of  profits  to  actual 
investment  by  issuing  stocks  or  bonds  without  limitation, 
is  not  in  accord  with  present  views  as  to  the  public  obli- 
gations of  carriers. 

Does  cost  of  reproduction  or  duplication  afford  a  sat- 
isfactory and  fair  basis  for  capitalization?  This  theory 
has  been  accepted  by  some  of  the  State  railroad  commis- 
sions, and  has  been  followed  by  several  courts.  The 
Interstate  Commerce  Commission,  however,  and  the 
United  States  Supreme  Court  have  not  adopted  this  rule. 
In  order  to  determine  what  rates  a  railroad  company 
may  reasonably  charge,  the  courts  and  commissions  are 
obliged  to  decide  how  much  capital  is  justly  entitled  to 
receive  profits  from  the  company's  earnings — i.  e.,  they 
are  compelled  to  determine  the  actual  and  just  value 
of  the  property;  for  it  may  be  assumed  that  its  owners 
may  properly  issue  capital  to  the  amount  of  a  just  valua- 
tion of  the  railroad.  The  amount  of  money  invested  in 
the  property  does  not  reveal  the  true  present  value  for 


RAILWAY  CAPITAL  93 

reasons  already  stated.  The  earning  capacity  of  the  rail- 
road can  not  equitably  or  logically  be  made  the  sole 
criterion  of  value,  because  the  rates,  and  hence  the  earn- 
ings, should  depend  to  some  extent  at  least  upon  the 
amount  of  capital  justly  entitled  to  profits. 

The  solution  of  this  difficult  question  seems  to  be  found 
by  taking  into  consideration  both  the  cost  of  reproduc- 
tion and  the  earning  capacity  in  determining  the  basis 
of  capitalization,  and  this  method  has  been  followed  in  a 
general  way  by  numerous  courts  and  commissions.  Defi- 
nite rules  for  applying  this  method  were  worked  out  by 
a  State  Tax  Commission,  in  Michigan,  in  1900.  In  deter- 
mining the  value  of  the  physical  properties  of  the  rail- 
road— its  road-bed,  rolling-stock,  terminals,  etc. — the  cost 
of  duplication  was  made  the  basis  of  valuation.  The 
railroad  company^s  franchise,  the  special  concessions 
granted  to  it  by  public  authority,  and  the  special  com- 
mercial opportunities  upon  which  its  business  depended 
— that  is  to  say,  all  the  non-physical  or  immaterial  ele- 
ments of  its  property — were  valued  in  accordance  with 
their  earning  capacity.  To  ascertain  the  value  to  be 
attributed  to  these  non-physical  properties,  a  method 
suggested  by  Prof.  Henry  C.  Adams  was  followed.  Ac- 
cording to  the  method  devised  by  Professor  Adams,  the 
value  of  these  immaterial  properties  "  was  determined 
(1)  by  deducting  aggregate  expenses  of  operation  from 
gross  earnings  and  adding  the  income  from  corporate 
investments;  (2)  by  deducting  from  the  total  income  thus 
obtained  an  amount  properly  chargeable  to  capital — that 
is,  a  certain  per  cent  on  the  appraised  value  of  the  phys- 
ical properties — rents  paid  for  the  lease  of  property  oper- 
ated, and  permanent  improvements  charged  directly  to 
income;  (3)  by  capitalizing  the  remainder  at  a  certain 
rate  of  interest.''  ^ 

*  Report  of  Industrial  Commission,  vol.  xix,  p.  412. 


94  AMERICAN  RAILWAY  TRANSPORTATION 

This  method  of  valuation  gives  a  basis  for  capitali- 
zation that  seems  to  be  equitable  to  all  parties  in  interest 
— the  public,  the  investor,  and  the  railroad  company. 
The  valuation  thus  determined  also  affords  a  fair  basis 
for  taxation. 

The  excessive  capitalization  of  their  properties  by 
many  railroad  companies  for  the  purpose  of  securing  the 
greatest  possible  amount  of  money  from  the  investing 
public,  and  the  speculative — sometimes  fraudulent — 
manipulation  of  railroad  securities,  have  probably  made 
the  cost  of  securing  transportation  services  greater  than 
it  need  have  been,  and  have  made  railroad  bonds  and 
stocks  a  much  less  reliable  form  of  investment  than  they 
might  have  been.  The  desirability  of  careful  and  intel- 
ligent public  regulation  of  the  issue  of  stocks  and  bonds 
by  railroad  corporations  seems  manifest.  Some  of  the 
States  have  undertaken  to  do  this. 

Massachusetts  has  the  most  effective  laws.  The  dis- 
tribution of  stock  as  a  bonus  to  purchasers  of  bonds  has 
not  been  permitted,  and  an  anti-stock-watering  act,  passed 
in  1894,  stipulates  that  "  no  railroad  corporation  or  other 
public  service  company  shall  declare  any  stock  or  scrip 
dividend,  or  divide  the  proceeds  of  a  sale  of  stock,  or 
scrip,  among  its  stockholders,  or  create  any  additional 
stock  or  issue  certificates  thereof  to  any  person,  unless 
the  par  value  of  the  sanie  shall  be  paid  in  cash  to  the 
treasurer."  The  administration  of  the  law  as  affecting 
railroads  is  in  charge  of  the  State  Railroad  Commission, 
and  the  statute  has  accomplished  good  results. 

Texas  has  a  law  limiting  the  amount  of  bonds  and 
other  indebtedness  to  what  the  State  Railroad  Commis- 
sion shall  deem  a  reasonable  valuation  of  the  railroad 
property,  and  Minnesota  has  a  statute  requiring  that,  all 
stock  issued  by  a  new  railroad  company  must  be  sold  at 
par,  and  that  there  shall  be  no  increase  of  stock  without 


RAILWAY  CAPITAL  95 

the  conseiit  of  the  State  Railroad  and  Warehouse  Com- 
mission. In  Kentucky  railroad  companies  can  increase 
stock  only  with  the  consent  of  the  Railroad  Commission, 
and  the  amount  of  indebtedness  must  never  exceed  the 
total  cash  paid  in.  Several  other  States  have  laws  by 
which  some  control  over  railroad  capitalization  is  exer- 
cised, but  the  Massachusetts  statute  is  the  only  one  that 
meets  the  situation  adequately. 

Many  persons,  including  some  railroad  officials  and 
State  commissioners,  believe  that  the  Federal  Interstate 
Commerce  Commission  should  be  endowed  by  Congress 
with  powers  over  the  capitalization  of  interstate  railroads 
similar  to  the  authority  possessed  by  the  Massachusetts 
commission  concerning  the  issue  of  securities  by  the  cor- 
porations of  that  State.  There  may  be  some  question 
as  to  the  practicability  of  the  execution  of  such  a  na- 
tional law  at  the  present  time,  unless  it  is  preceded  by 
much  other  legislation  enlarging  the  duties  and  pow- 
ers of  the  Interstate  Commerce  Commission;  but  there 
are  excellent  reasons  why  the  several  States  should 
promptly  legislate  to  prevent  the  evils  resulting  from 
stock  watering. 

A  law  enacted  by  England  in  1900  to  enforce  pub- 
licity and  responsibility  in  the  organization  and  manage- 
ment of  corporations  promises  to  restrict  the  objection- 
able practises  sometimes  adopted  by  the  "  promoters  "  of 
companies  and  by  directors  who  may  desire  to  manipu- 
late the  affairs  of  the  corporation  in  their  own  rather  than 
the  stockholders'  interests.  It  is  a  detailed  statute  requi- 
ring much  greater  publicity  in  the  management  of  cor- 
porations than  is  customary  in  the  United  States,  but 
its  provisions  are  worthy  of  careful  consideration  by  those 
who  may  attempt  to  deal  with  the  question  of  public 
regulation  of  the  capitalization  of  the  railroads  in  the 
United  States. 


L 


96  AMERICAN  RAILWAY  TRANSPORTATION 


REFEEElSrCES    FOR    FURTHER    READING 

Cleveland,  F.  A.     Funds  and  their  Uses.     1902. 

Meade,  E.  S.     Trust  Finance.     1903. 

Report  of  the  Industrial  Commission.     Vol.  xix,  pp.  397-419,  1902. 

Statistics  ot  Railways  of  the  United  States.  [An  annual  report  by 
the  Interstate  Commerce  Commission.] 

Senate  Document  No.  178,  Fifty-seventh  Congress,  SGcond  Session. 
[A  report  made  February  24,  1903,  comparing  the  par  and  mar- 
ket value  of  railroad  securities  for  the  year  ending  June  30,  1900.] 


CHAPTEK  yni 

EAKmNGS,    EXPENSES,    AND    DIVIDENDS 

The  revenues  obtained  by  tbe  railroad  companies  are 
derived  mainly  from  the  freight  and  passenger  services. 
The  payments  received  for  the  transportation  of  mail  and 
express  matter  are  of  considerable  amounts,  but  as  the 
mail  and  express  cars  are  always  attached  to  passenger- 
trains,  the  "receipts  which  the  railroads  obtain  from  the 
Government  and  the  express  companies  for  running  those 
cars  are  credited  to  the  passenger  service.  In  connection 
with  both  the  freight  and  passenger  services  there  are 
earnings  not  derived  from  the  operation  of  trains,  such 
as  receipts  for  the  rental  of  cars  and  terminal  facilities 
of  various  kinds.  Moreover,  some  railroad  corporations 
lease  their  tracks  to  other  companies  and  own  the  stocks 
or  bonds  of  other  companies — both  railroad  and  industrial 
— and  the  rentals  and  the  interest  or  dividends  on  these 
investments  constitute  sources  of  revenue. 

A  general  grouping  of  railroad  revenues  may  be  made 
into  (1)  those  derived  from  the  operation  of  trains,  and 
(2)  those  obtained  from  interest  on  loans  and  invest- 
ments, and  from  rentals.  In  the  accounts  and  reports  of 
railroad  companies  each  of  these  groups  is  divided  into 
several  subclasses.  The  annual  statistical  report  pub- 
lished by  the  Interstate  Commerce  Commission  summa- 
rizes the  earnings  of  railroads  as  is  shown  by  the  table  on 
the  following  page. 

8  97 


98 


AMERICAN  RAILWAY  TRANSPORTATION 


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EARNINGS,  EXPENSES,   AND  DIVIDENDS  99 

It  will  be  observed  that  tbe  table  gives  separately  the 
income  from  operation  and  from  "  other  sources/'  and 
that  of  the  total  earnings  and  income  of  the  railroads 
barely  one-fifth  is  derived  from  the  transportation  of 
passengers,  and  that  about  two-thirds  is  obtained  directly 
from  the  freight  business.  One-twenty-fifth  of  the  total 
receipts  comes  from  the  mail  and  express  services,  and 
one-tenth  from  sources  of  income  distinct  from  the  oper- 
ation of  trains.  The  "  gross  "  or  entire  income  derived 
from  the  operation  of  the  American  railroads  in  1900 
amounted  to  $1,487,044,814,  and  in  1901  the  total  was 
$1,588,526,037. 

The  table  gives  the  income  from  "  other  sources  "  as 
having  been  $162,885,071  in  1900,  and  $179,746,449  in 
1901,  but  these  figures  for  income  from  other  sources 
involve  duplications,  if  all  the  railroads  of  the  United 
States  be  considered  as  one  system.  To  eliminate  these 
duplications  it  is  necessary  to  subtract  the  sums  received 
for  the  lease  of  roads  ($99,429,619  i^  1900,  and  $111,- 
637,907  in  1901),  because  they  represent  merely  the 
transfer  of  funds  from  one  company  to  another — from 
one  part  of  the  American  railroad  system  to  another. 
The  same  is  true  of  sums  paid  by  one  company  to  another 
as  interest  on  bonds  and  dividends  on  stocks,  which 
amounted  to  $30,929,436  in  1900,  and  to  $34,619,894 
in  1901.  The  subtraction  of  these  sums  from  the  total 
income  from  other  sources  gives  "  clear  income  from 
investments  "  amounting  to  $32,526,016  in  1900,  and  to 
$33,488,648  in  1901.  Considering  the  railroads  of  the 
United  States  as  a  single  system,  the  actual  income  in  1900 
and  1901  is  shown  in  page  100. 

The  accompanying  figures  refer  to  the  "  gross  "  earn- 
ings and  income.  An  examination  of  expenditures  will 
show  what  disposition  is  made  of  the  revenues.  Payments 
are  made  to  meet  three  general  sources  of  expense.     The 


100 


AMERICAN  RAILWAY  TRANbPORTATION 


first  and  largest  is  "  operating  expenses,"  of  which  there 
are  four  large  subclasses:  niaintenance  of  way  and  struc- 
tures, maintenance  of  equipment,  conducting  transporta- 
tion, and  general  expenses.  The  second  general  source 
of  expense  is  "  fixed  charges  " — the  necessary  payments 
for  interest  on  funded  and  floating  debts,  for  rentals,  for 
taxes,  and  for  the  sinking-fund,  if  provision  is  made  for 
such  a  fund.  The  third  expense  is  for  the  payment  of 
dividends,  first  on  the  preferred  stock  and  then  on  the 
common. 

Comparative  Income  Account  of  the  Railways  of  the  United 
States,  considered  as  a  System,  for  the  Years  ending  June 
30,  1901  and  1900 


AMOUNT. 

TFKM. 

1001. 

1900. 

Increase. 

Gross      earnings 

from  operation. 

Clear  income  from 

1  n  vpQf.m  pn  1 4 

$1,588,526,037 
33,488,648 

$1,487,044,814 
32,526,016 

$101,481,223 

$1,622,014,685 

962,632 

$1,519,570,830 

Gross       earnings 

$102,443,855 

The  surplus  remaining  after  paying  the  operating 
expenses  and  fixed  charges  is  generally  called  the  net 
earnings.  The  net  earnings  represent  the  profits  of  the 
business,  and  from  them  are  first  subtracted  the  amounts 
required  for  dividends  on  the  preferred  stock,  next  such 
a  sum  as  the  company  may  think  best  to  add  to  the  sur- 
plus or  to  the  "  profit  and  loss  "  account,  and  then  the 
remainder  is  distributed  among  the  holders  of  common 
stock. 

The  statistical  report  of  the  Interstate  Commerce 
Commission  summarizes  in  the  following  tabular  form  the 
expenditures  of  railroad  companies  for  operating  expenses 
and  fixed  charges: 


EARNINGS,  EXPENSES,  AND  DIVIDENDS 


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102 


AMERICAN  RAILWAY  TRANSPORTATION 


The  fixed  charges  paid  are  shown  in  two  parts  by 
the  table,  those  paid  in  subsidiary  railroad  companies 
being  separately  stated.  Seven-tenths  of  the  total  ex- 
penses for  operating  roads  and  for  fixed  charges  were 
due  to  operating  expenses,  and  three-tenths  for  fixed 
charges.  An  interesting  fact  not  shown  by  the  table  is 
that  about  65  per  cent  of  the  entire  income  from  oper- 
ation was  absorbed  by  the  operating  expenses;  the  remain- 
ing 35  per  cent  went  to  meet  fixed  charges  and  to  remu- 
nerate the  stockholders. 

By  a  table  showing  both  earnings  and  expenses  it 
is  possible  to  indicate  the  amount  of  the  net  income,  the 
sum  distributed  as  dividends,  and  the  funds  credited  to 
the  surplus.  The  table  is  also  from  the  report  of  the 
Interstate  Commerce  Commission: 

Comparative  Condensed  Income  Account  for  the  Years 
ending  June  30,  1901  and  1900 


AMOUNT. 

Item. 

1901. 

1900. 

Gross  earnings  from  operation 

Less  operating  expenses 

$1,588,526,037 
1,030,397,270 

$1,487,044,814 
961  428,511 

Income  from  operation 

$558,128,767 
179,746,449 

$525  616  303 

Income  from  other  sources 

162,885,071 

Total  income 

$737,875,216 
496,363,898 

$688,501,374 

Total  deductions  from  income 

461,240,927 

Net  income '. . . 

$241,511,318 
156,746,536 

$227,260,447 

Total   dividends    (including    "other 
payments  from  net  income  ") 

139,602,514 

Surplus  from  operations 

$84,764,782 

$87,657,933 

The  net  earnings  or  income  in  1901  were  $241,511,- 
318,  of  which  sum  $156,746,536  was  paid  as  dividends. 
A  part  of  the  dividends  was  paid  to  other  railroad  compa- 
nies, thus  making  the  net  dividend  received  by  individuals 


EARNINGS,  EXPENSES,  AND  DIVIDENDS 


103 


and  corporations  other  than  railroads  somewhat  less  than 
the  figures  given.  The  surplus  in  1901  amounted  to 
$84,764,782.  Somewhat  more  than  one-fourth  of  the 
dividends  went  to  the  holders  of  preferred  stock,  and 
about  three-fourths  to  the  owners  of  the  common  stock. 

As  was  stated  in  the  previous  chapter,  less  than  half 
the  stock  received  dividends  in  1900.  In  1901,  51.27 
per  cent  of  the  stock  shared  in  dividends.     Some  of  the 


1890 

1891 

1892 

1893 

1894 

1895 

1896 

1897 

1898 

1899 
1900 

MILLIONS  OF^DOLLARS 
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American  Railway  Earnings,  1890-1900. 

bonds,  about  7  per  cent  of  the  total  amount  in  1900, 
and  6.23  per  cent  in  1901,  obtained  no  interest  payments. 
The  prosperous  times  since  1897  have  greatly  increased 
the  receipts  of  railway  capital,  particularly  the  stocks. 
The  large  issues  of  watered  stock  chiefly  account  for  the 
fact  that  such  a  percentage  of  the  stocks  yields  no  income. 
Indeed,  the  purpose  of  stock  watering  is  not  to  secure 
immediate  income,  but  to  secure  larger  present  invest- 


104  AMERICAN  RAILWAY  TRANSPORTATION 

ments  by  speculative  capitalists  and  to  anticipate  the 
future  increase  in  the  value  of  the  property  whose  pres- 
ent earning  capacity  has  been  overcapitalized. 

The  chart  (p.  103)  shows  graphically  for  eleven  years, 
1890  to  1900,  the  gross  earnings  of  American  railroads, 
the  revenue  from  the  freight  service,  the  operating  ex- 
penses, and  the  income  available  for  dividends.  The 
chart  also  shows  the  effect  of  general  business  conditions 
upon  railroad  earnings  and  dividends.  The  balance-sheets 
of  railroad  reports  are  an  accurate  business  index.  Dur- 
ing the  prosperous  years  of  1890,  1891,  and  1892  gross 
earnings  rose  rapidly,  and  then  with  the  financial  depres- 
sion which  began  in  1893  they  fell  off  sharply.  The 
position  held  in  1892  was  not  regained  until  near  the 
close  of  1897,  since  which  time  the  increase  in  earnings 
has  been  continuous  and  rapid  as  the  result  of  the  excep- 
tionally prosperous  times  that  have  prevailed  during  the 
past  few  years. 

Other  less  obvious  facts  are  illustrated  by  the  chart. 
As  gross  earnings  rose  rapidly  from  1890  to  1893,  the  net 
income  available  for  dividends  rose  slowly  and  actually 
declined  during  1892.  The  larger  earnings  were  being 
absorbed  by  the  fixed  charges  and  the  operating  ex- 
penses, especially  the  latter.  It  being  the  practise  of 
American  companies  to  pay  for  additional  equipment, 
for  improvements  and  new  construction  largely  from 
earnings,  as  well  as  by  the  sale  of  bonds  and  stocks,  a 
portion  of  the  earnings  received  during  prosperous  times 
is  used  in  betterments  and  extensions.  What  occurred 
during  the  three  years  preceding  1893  has  taken  place 
on  a  much  larger  scale  since  1897.  The  influence  of  the 
bondholder  is  greater  than  that  of  the  stockholder  in 
shaping  the  finances  and  management  of  American  rail- 
roads, and  present  profits  of  the  stockholder  are  restricted 
in  order  to  strengthen  the  future  earning  capacity  and 


EARNINGS,  EXPENSES,  AND  DIVIDENDS  105 

value  of  the  property.  This  is,  on  the  whole,  fortunate, 
because  this  policy  is  bringing  about  constant  improve- 
ments in  our  railroad  system,  and  giving  a  better  and 
more  economical  service. 

A  comparison  of  the  freight-revenue  line  on  the 
chart  with  the  line  for  operating  expenses  shows  that 
when  earnings  decline  rapidly  it  is  not  possible  to  curtail 
operating  expenses  to  an  equal  degree.  Likewise,  when 
there  is  a  large  increase  in  earnings  the  operating  ex- 
penses, including  the  large  expenditures  for  betterments, 
do  not  rise  with  equal  rapidity.  A  large  business  is  rela- 
tively less  expensive  than  a  small  one. 

The  earnings  of  the  railroads  have  been  favorably 
affected  by  the  betterments  and  resultant  economies  of 
recent  years.  In  1897  the  freight-train  load  was  204 
tons;  in  1900  it  was  271  tons;  and  in  1901,  281  tons. 
The  average  earnings  per  mile  run  by  a  freight-train  in 
1897  was  $1.65;  in  1900,  $2;  and  in  1901,  $2,132. 
While  both  the  train-load  and  the  earnings  have  been 
favorably  affected  during  the  last  few  years  because  of 
the  large  volume  of  traffic,  they  are  none  the  less  due  to 
improvements  in  track,  equipment,  and  management, 
whose  influence  on  earning  will  be  permanent. 

The  combined  effects  of  economies  in  operation  and 
of  large  volume  of  traffic  are  indicated  by  the  average 
earnings  and  income  per  mile  of  line.  The  facts  for 
eleven  years,  beginning  with  1891,  are  shown  by  the  table 
on  page  106. 

By  comparing  this  table  with  the  preceding  chart,  it 
will  be  seen  that  the  facts  regarding  changes  in  earnings 
and  operating  expenses  per  mile  are  nearly  the  same  as 
those  for  the  entire  railroad  system.  The  changes  in 
mileage  have  not  been  responsible  for  the  changes  in 
average  earnings  and  expenses  per  mile. 

When  a  railroad's  n.et  earnings  are  small,  its  stocks 


106 


AMERICAN  RAILWAY  TRANSPORTATION 


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will  sell  at  a  low  figure  and 
its  bonds  will  not  be  sought 
after  by  investors.  The  price 
of  securities  rises  with  the 
increase  in  earnings,  but  the 
two  movements  are  not  usu- 
ally parallel.  Larger  net 
earnings  come  during  peri- 
ods of  prosperity,  and  it  is 
then  that  speculation  is  very 
active;  so  active,  indeed,  as 
usually  to  make  the  prices 
of  the  stocks  most  dealt  in 
rise  much  higher  than  the 
gain  in  net  earnings  would 
seem  to  justify.  Similarly 
when  net  earnings  fall  oil 
the  speculative  demand  for 
the  securities  affected  sud- 
denly ceases  and  their  prices 
drop  out  of  proportion  to 
the  decline  in  earnings.  The 
fluctuation  in  market  value 
is  much  less  for  bonds  than 
for  stocks,  but  the  bonds 
even  are  affected  to  a  con- 
siderable degree  by  specula- 
tion, because  speculation  in 
the  stock  may  result  in 
changes  of  policy  as  re- 
gards capitalization  or  man- 
agement that  will  seriously 
affect  the  value  and  market- 
ability of  the  bonds. 

In  the  case  of  most  rail- 


EARNINGS,  EXPENSES,  AND  DIVIDENDS  107 

road  companies  the  purchase  of  the  bonds  as  well  as  the 
stocks  is  usually  considered  a  risky  venture  for  those  seek- 
ing a  safe  and  permanent  investment.  There  are  several 
companies  whose  bonds  are  in  demand  from  insurance  com- 
panies, savings-banks,  trust  companies,  and  other  fiduciary 
organizations  having  funds  to  invest.  There  are  also  some 
companies  whose  stocks  are  considered  fairly  safe.  In 
general,  there  has  been  a  marked  improvement  in  the 
merits  of  railroad  securities  as  forms  of  investment,  but 
speculation  in  them  is  still  so  active  and  so  little  restricted 
by  public  regulation  as  to  make  them  less  satisfactory  and 
less  beneficial  socially  than  they  might  be  as  repositories 
of  the  savings  of  masses. 

EEFEKENCES   FOE   FURTHEE   EEADIN^G 

Statistics  of  Railways  of  the  United  States.     [Annual  report  by  the 

Interstate  Commerce  Commission.] 
Report  of  the  Industrial  Commission,  vol.  xix,  pp.  267-273. 


PART  II 
THE  RAILWAY  SERVICE 


CHAPTEK   IX 

THE    FREIGHT    SERVICE 

The  transportation  service  performed  by  tlie  railroads 
includes  the  movement  of  freight,  the  carriage  of  persons, 
and  the  transmission  of  mail  and  express  matter.  Each 
of  these  services  merits  careful  consideration. 

Whether  viewed  from  the  standpoint  of  public  bene- 
fit or  considered  with  regard  to  the  volume  of  business 
done  and  profits  received  by  the  company,  the  transpor- 
tation of  freight  is  the  most  important  service  performed 
by  the  railroad.  The  income  from  the  passenger  busi- 
ness is  about  one-fifth  of  the  total  earnings  and  income 
of  the  railroads  in  the  United  States,  while  the  receipts 
from  the  freight  amount  to  seven-tenths.  Moreover, 
social  welfare  is  more  dependent  upon  cheap  and  unfet- 
tered movement  of  commodities  than  upon  inexpensive 
and  speedy  means  of  travel;  for,  however  important  it 
may  be  that  the  relatively  few  people  who  may  at  any 
one  time  desire  to  take  a  journey  should  be  able  to 
reach  their  destination  promptly  and  comfortably,  it  is 
of  incalculably  greater  consequence  that  producers  should 
be  able  to  dispose  of  the  commodities  upon  the  sale  of 
which  their  livelihood  depends  and  that  consumers  should 
have  the  power  of  drawing  upon  distant  as  well  as  near 
sources  of  supply  for  the  satisfaction  of  their  wants  and 
the  gratification  of  their  desires. 

The  volume  of  freight  transported  increases  rapidly 
with  the  progress  of  civilization  and  the  diversification 

111 


112  AMERICAN  RAILWAY  TRANSPORTATION 

of  men's  wants.  The  freight  business  is  carried  on  to 
enable  men  to  secure  what  they  want;  and  the  more 
complex  their  demands  the  more  goods  will  be  produced 
and  transported.  The  growing  demand  for  the  freight 
service  has  furnished  a  most  powerful  stimulus  to  invent- 
ors and  engineers  to  lessen  the  obstacles  to  the  move- 
ment of  commodities  by  improving  the  tracks,  cars,  and 
locomotives,  and  making  other  changes  in  the  railroad 
mechanism  whereby  the  costs  of  transportation  have  been 
reduced  to  their  present  small  amount.  Whether  the 
endeavor  of  railroad  companies  to  increase  the  speed  of 
their  passenger-trains  or  their  efforts  to  lessen  the  costs 
of  freight  movement  have  been  the  more  potent  incen- 
tive to  mechanical  improvements,  it  would  be  impossible 
to  say;  but  the  results  accruing  to  society  from  those 
improvements  have  come  more  largely  from  the  greater 
facilities  for  the  shipment  of  goods. 

During  the  year  ending  June  30,  1901,  the  railroads 
in  the  United  States  reported  a  freight  traffic  of  1,089,- 
226,440  tons.  This  is  a  greater  tonnage  than  shippers 
actually  turned  over  to  the  roads,  because  the  same 
freight  is  often  handled  by  more  than  one  road  and 
duplications  result  from  taking  the  total  of  all  the  traffic 
of  all  the  companies.  After  making  the  deductions  nec- 
essary to  eliminate  the  duplications,  it  is  found  that 
the  traffic  actually  received  from  shippers  during  that 
year  amounted  to  583,692,427  tons.  The  average  dis- 
tance traveled  by  each  ton  of  freight  was  128.53  miles, 
and  the  number  of  tons  carried  one  mile — or  the  "  ton- 
mileage ''—was  147,077,136,040.  To  handle  that  vast 
tonnage  of  traffic  required  nearly  29,400  freight  and 
switching  locomotives  and  more  than  1,600,000  freight- 
cars. 

The  mines  from  which  the  coal,  iron  ore,  and  other 
minerals  are  taken  furnish  more  than  half  the  tonnage 


THE  FREIGHT  SERVICE  113 

handled  by  the  railroads,  but  as  this  traffic  is  carried  at 
low  rates  per  ton  the  receipts  from  this  business  amount 
to  much  less  than  half  the  total  freight  revenue  of  the 
railroads.  Manufactures  supply  nearly  one-seventh  of 
the  tonnage,  the  products  of  the  forest  nearly  one- 
eighth,  and  the  products  of  agriculture  about  one-ninth. 
The  remainder  of  the  traffic,  comprising  somewhat  less 
than  one-seventh  of  the  total,  consists  of  animal  products, 
general  merchandise,  and  miscellaneous  unclassified  com- 
modities. There  are  no  figures  obtainable  regarding  the 
value  of  the  goods  which  the  railroads  transport,  but  if 
their  value  does  not  average  more  than  $25  a  ton,  their 
total  worth  would  be  nearly  $15,000,000,000. 

The  articles  comprised  under  the  seven  headings  men- 
tioned in  the  preceding  paragraph  include  many  thousand 
kinds  of  commodities.  It  is  necessary  for  the  railroad 
companies  to  group  the  goods  into  a  small  number  of 
classes  as  a  basis  for  fixing  rates  of  charges  for  transpor- 
tation. To  have  a  separate  rate  for  each  of  9,000  or 
more  commodities  and  the  rate  on  each  of  them  differ- 
ent between  each  two  termini  would  be  utterly  confusing 
to  the  freight-agents  and  to  the  shippers. 

Until  1887  nearly  every  large  railroad  had  a  classi- 
fication of  its  own,  but  now  most  business  is  handled  by 
one  of  three  classifications.  In  the  section  east  of  the 
Mississippi  River  and  north  of  the  Ohio  and  Potomac — 
that  is,  in  the  New  England  and  trunk  line  territories — 
a  classification  called  the  "  Official "  is  in  force.  Its  con- 
struction, revision,  and  supervision  are  in  charge  of  a 
committee  with  headquarters  in  'New  York.  South  of 
the  Ohio  and  east  of  the  Mississippi  the  "  Southern '' 
classification  is  in  operation  under  the  control  of  a  com- 
mittee located  at  Atlanta.  In  the  country  west  of  the 
Mississippi  the  "  Western  "  classification  prevails,  admin^ 
istered  by  a  committee  in  Chicago.  Some  of  the  through 
9 


114  AMERICAN  RAILWAY  TRANSPORTATION 

business  to  and  from  the  Pacific  coast  points  is  done  under 
a  classification  issued  by  the  Transcontinental  Freight 
Bureau,  whose  offices  are  in  San  Francisco.  In  several 
States — Illinois,  Iowa,  Georgia,  and  some  others — classi- 
fications have  been  prescribed  by  the  State  Railroad  Com- 
missions, the  classification  of  each  State  applying  only 
to  the  business  carried  on  entirely  within  its  boundaries. 

The  Western  and  Southern  classifications  group  com- 
modities into  ten  classes.  The  Official  nominally  has 
six  classes,  but  the  grouping  is  really  into  double  that 
number.  The  class  to  which  an  article  is  assigned  in 
these  classifications  is  determined  by  a  variety  of  con- 
siderations. The  class  given  an  article  affects  the  rate 
of  freight  it  must  pay,  those  commodities  grouped  as 
first-class  paying  a  higher  rate  than  those  catalogued  as 
second-class,  and  the  second-class  articles  are  obliged  to 
pay  heavier  charges  than  those  given  a  lower  rating.  The 
decision  as  to  the  class  to  which  an  article  shall  be  assigned 
is  in  general  determined  by  v>^hat  rate  the  article  under 
consideration  ought  to  pay  to  remunerate  the  railroad 
for  the  expenses  involved  in  its  transportation,  and  also 
by  what  the  article  can  pay — that  is,  whether  it  is  a 
commodity  of  high  value  for  the  transportation  of  which 
shippers  can  afford  to  pay  a  relatively  high  rate.  Arti- 
cles are  put  into  higher  classes  if  their  transportation  is 
especially  expensive  to  the  railroads  and  if  the  value  of 
the  service  to  the  shipper  is  large.  The  classification  of 
freight  is  closely  connected  with  the  subject  of  rates, 
and  the  factors  determining  the  classification  of  commodi- 
ties wall  be  indicated  more  clearly  in  the  chapters  on 
rates. 

In  all  classifications  the  majority  of  commodities  is 
placed  in  a  different  class  when  shipped  in  car-load  quan- 
tities than  when  offered  to  the  railroad  in  less  than  car- 
load lots.     The  class  to  which  the  article  is  assigned,  and 


THE  FREIGHT  SERVICE 


115 


consequently  the  rate  it  must  pay,  are  made  lower  for  the 
car-load  quantity  than  for  smaller  consignments.  The 
reason  for  this  is  that  business  can  be  done  on  a  large 
scale  more  economically  than  on  a  small  scale.  The 
producer  who  ships  in  car-load  quantities  can  usually  sup- 
ply the  railroad  not  only  with  a  large  amount  of  freight, 
but  with  a  regular  volume  of  business,  and  can  thereby 
enable  the  carrier  to  perform  the  service  at  much  less 
cost  per  ton  than  business  can  be  handled  for  the  small 
shipper. 

To  illustrate  the  manner  in  which  commodities  •  are 
actually  grouped  in  freight  classifications  and  to  bring 
out  some  of  the  facts  influencing  the  rating  of  commodi- 
ties, there  have  been  compiled  in  the  following  table  a 
few  extracts  from  a  recent  issue  of  the  Official  classifica- 
tion. The  commodities  are  taken  at  random  from  the 
detailed  classification  comprising  about  9,000  commod- 
ities. 

Extracts  from  the  Official  Freight  Classification 


Description  op  Article. 


Galvanized-iron  cornices  in  section  not  set  up 
and  crated. 

Galvanized-iron  cornices  in  section  set  up 
and  crated 

Chairs,  cane  or  splint,  set  up 

Clothes- wringers,  not  boxed 

Fruit-evaporators 

Clothes-reels,  boxed 

Clothes-wringers,  boxed 

Clothes-wringers  stock  in  the  white 

Clothes- wringer  stock,  rough 

Flour  in  quantities  less  than  25,000  pounds. . 

Flour  in  quantities  of  25,000  pounds  and  over 


Class  for  less  than 
car-load  lots. 

Class  for 

carload 

lots. 

4    X  1st  class 

3 

3    X    "      ' 

3 

2^  X    "      ' 

2    X    "      ' 

n  X  "    ' 

4 

1st     ' 

5 

2d      ' 

4 

3d      ' 

5 

4th    ' 

6 

5th    ' 

6 

It  is  evident  from  the  above  brief  table  that  the 
classification  of  commodities  is  influenced  by  the  space 
they  occupy,  and  is  also  made  to  depend  upon  the  value 


116  AMERICAN  RAILWAY   TRANSPORTATION 

of  the  articles.  The  expense  of  transportation  to  the 
shipper  is  made  to  vary  with  reference  to  the  value  of  the 
commodities,  and  is  in  most  cases  conditioned  upon  the 
quantity  of  shipment.  The  difference  in  classification,  and 
consequently  in  freight  charges,  between  less  than  car- 
load and  car-load  quantities  is  a  wide  one,  much  greater 
than  the  variation  in  classification  and  rates  for  the  lower 
groups. 

It  is  never  practicable  to  classify  all  commodities, 
and  every  railroad  transports  many  articles — as,  for  ex- 
ample, live  stock  and  coal — at  special  or  commodity 
tariffs.  The  articles  thus  treated  are  invariably  handled 
in  car-load  lots,  and  in  many  cases  they  are  not  included 
in  the  classification,  because  special  conditions  of  competi- 
tion between  the  railways  and  the  carriers  by  water 
require  that  the  articles  should  be  especially  favored  by 
the  railroads  in  order  to  prevent  the  diversion  of  the 
traffic  to  the  lake  or  ocean  vessels.  The  competition 
between  the  railroads  engaged  in  transcontinental  traffic 
and  the  lines  of  vessels  navigated  between  our  two  sea- 
boards gives  rise  to  a  well-known  instance  of  the  exemp- 
tion from  classification  of  a  large  number  of  commodi- 
ties. The  reason  which  most  frequently  influences  a  rail- 
road to  exempt  a  commodity  from  classification  is  the 
desire  of  the  railroad  to  foster  the  development  of  new 
and  special  industries.  Men  who  are  engaging  in  new 
forms  of  production  or  are  opening  up  previously  unde- 
veloped resources  are  constantly  beseeching  the  railroad 
companies  for  special  or  commodity  tariffs.  The  railroad 
companies  thus  besought  by  the  shippers  frequently  have 
difficulty  in  deciding  what  course  to  follow.  The  rail- 
road is  always  desirous  of  promoting  as  far  as  possible  the 
industrial  development  of  the  section  of  country  which 
it  serves,  but  it  is  at  the  same  time  equally  desirous  of 
maintaining  a  schedule  of  freight  charges  high  enough 


THE  FREIGHT  SERVICE  117 

to  yield  the  owners  of  the  railroad  a  fair  profit  upon  their 
investments.  The  shipper  desires  to  secure  the  lowest 
possible  rate ;  the  railroad  company  endeavors  to  maintain 
a  profitable  rate.  Generally,  however,  the  shipper  suc- 
ceeds in  getting  the  commodity  tariff.  Some  roads  have 
more  than  a  thousand  special  or  commodity  tariffs;  the 
Niew  York  Central  Railroad,  for  instance,  in  1899  had 
,1,370  such  tariffs  in  force,  and  the  opposition  of  many 
shippers  was  aroused  when  at  the  beginning  of  1900  a 
revision  of  the  classification  was  made,  by  which  175  of 
these  special  tariffs  were  terminated. 

Efforts  have  been  made  to  unify  the  several  freight 
classifications  now  in  force  and  to  substitute  for  them 
one  uniform  classification.  If  this  could  be  done  suc- 
cessfully it  would  be  highly  desirable,  because  it  would 
enable  producers  of  all  commodities  in  different  parts  of 
the  country  to  know  accurately  what  would  be  the  cost 
of  getting  their  commodities  to  the  market  and  how 
much  freight  they  would  have  to  pay  upon  the  supplies 
brought  to  them  by  the  railroads.  The  unification  of  the 
classification  would  also  make  it  easier  for  shippers  and 
for  the  State  to  detect  discriminations.  The  enforcement 
of  a  published  schedule  of  rates  and  the  equal  treatment 
of  all  shippers  could  be  much  more  readily  brought  about. 
Many  people,  including  the  members  of  the  Interstate 
Commerce  Commission,  have  favored  Federal  laws  requir- 
ing the  railroads  to  adopt  a  uniform  classification,  and, 
in  the  case  of  their  failure  to  do  so,  empowering  the 
Interstate  Commerce  Commission  to  promulgate  such  a 
classification.  Such  a  law  came  near  being  enacted  in 
1889;  but  Congress,  upon  the  advice  of  the  Interstate 
Commerce  Commission,  which  thought  the  time  had  not 
then  arrived  for  compulsory  action,  gave  the  railroad 
companies  an  opportunity  to  attempt  to  work  out  a 
single  classification  for  the  entire  country.     An  earnest 


118  AMERICAN  RAILWAY  TRANSPORTATION 

effort  was  made  by  the  railroad  companies  during  the  suc- 
ceeding two  years  to  accomplish  this  result.  The  attempt, 
however,  was  not  successful.  The  differences  in  the 
three  main  classifications  represent  such  variations  in 
industrial  conditions  in  different  parts  of  the  United 
States  that  the  obstacles  in  the  way  of  a  uniform  classi- 
fication of  the  productions  of  different  parts  of  our  wide 
country  seem  at  the  present  time  to  be  insurmountable. 
The  unification  of  present  classifications  would  require 
the  complete  readjustment  of  rates  and  would  funda- 
mentally alter  the  existing  conditions  of  competition  be- 
tween rival  producing  and  manufacturing  centers  in  dif- 
ferent parts  of  the  country.  It  would  probably  not  be 
an  impossibility  to  rearrange  freight  charges  on  the  basis 
of  a  uniform  classification  in  such  a  manner  as  to  mini- 
mize the  interference  with  industrial  competition,  particu- 
larly if  a  large  number  of  articles  were  omitted  from  the 
classification  and  were  given  special  or  commodity  tariffs. 
There  are,  however,  serious  objections  to  increasing  the 
already  large  number  of  special  tariffs,  and  on  the  whole 
it  seems  desirable  to  postpone  uniform  classification  until 
a  time  when  it  can  be  worked  out  with  less  disturbance 
to  business  conditions. 

Freight  is  usually  spoken  of  as  through  and  local. 
In  a  popular  sense  through  freight  means  that  which  is 
transported  a  long  distance,  and  local  freight  that  which 
is  moved  only  a  short  distance.  The  railroad  companies, 
however,  use  the  words  in  a  more  technical  sense.  By 
local  freight  they  mean  that  which  originates  and  termi- 
nates upon  the  same  line — that  is,  freight  carried  between 
two  points  on  the  same  road.  Through  freight  is  that 
which  comes  to  the  railroad  company  from  some  other 
railroad,  or  that  which,  originating  at  some  point  on  the 
line,  is  turned  over  to  some  connecting  carrier — that  is 
to  say,  through  freight  is  that  in  the  transportation  of 


THE   FREIGHT  SERVICE  119 

whkh  more  than  one  carrying  company  is  employed.  In 
genera],  the  technical  use  of  the"  terms  corresponds  with 
their  popular  meaning,  but  not  always  so.  Some  freight 
may  travel  hundreds  of  miles,  pass  State  boundaries  and 
move  between  great  centers  of  population,  and  yet  not 
leave  the  original  line;  while  through  freight  may  move 
only  a  short  distance.  The  distinction  between  through 
and  local  freight  is  an  important  one  for  the  railroads, 
because  they  are  obliged  to  employ  different  methods  of 
accounting  when  the  business  is  handled  jointly  with 
another  corporation  than  when  it  is  confined  entirely  to 
their  own  line. 

The  great  volume  of  freight  business  done  by  the  rail- 
roads is  conducted  by  the  use  of  only  a  few  business 
papers.  The  records  kept  are  complete  and  are  very 
simple.  Upon  delivering  his  goods  to  the  railroad  com- 
pany at  one  of  its  freight  stations,  the  shij^per  receives 
from  the  representative  of  the  company  a  ^'receipt  for 
freight''  similar  in  form  to  a  bill  of  lading  (page  122), 
except  that  the  rate  of  freight  is  usually  not  entered.  Large 
shippers  furnish  receipts  for  freight  in  duplicate  or  trip- 
licate form  and  the  freight  agent  receipts  the  different 
forms,  marking  the  second  and  third  forms  "duplicate  " 
and  "  triplicate,"  or  "  copy."  The  shipper  may  send  the 
original  to  the  consignee  or  use  it  to  secure  a  bill  of  lading. 
The  second  copy  is  retained  by  the  railroad  company,  the 
third  copy  is  kept  by  the  shipper  for  his  office  records. 

It  is  customary  for  shippers  to  exchange  the  receipt  for 
freight  for  a  bill  of  lading ;  but  at  places  where  no  official 
is  located  who  can  issue  a  bill  of  lading  the  receipt  for 
freight  is  issued  and  may  be  used  for  obtaining  advances 
from  banks,  the  same  as  bills  of  lading  are  used. 

The  bill  of  lading  is  made  out  in  triplicate,  the 
original  and  one  copy  are  given  to  the  shipper,  who 
keeps  the   copy   and   sends   the   original  to   the   man   to 


120 


AMERICAN  RAILWAY  TRANSPORTATION 


whom  the  goods  are  shipped — that  is,  to  the  consignee. 
The  railroad  company  retains  the  other  copy  of  the  bill 
of  lading.     This  bill  of  lading  is  in  fact  a  contract  which 


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THE  FREIGHT  SERVICE 


121 


the  railroad  makes  for  the  transportation  and  delivery 
of  the  articles  named  in  the  bill  to  the  proper  consignee. 
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122 


AMERICAN  RAILWAY   TRANSPORTATION 


shippers  to  deposit  these  bills  Avith  the  banks,  which 
accept  them  for  the  value  of  the  property  described  in 
the  bill  and  give  the  shipper  credit  to  that  amount.  The 
bills  of  lading  are  of  two  general  descriptions:  "  uniform  " 
and  "  special."    The  uniform  bill  of  lading,  which  is  used 


o-ia-c-A.  r.  a. 


[BILL  OF  LADrNC] 


Pennsylvania  Railroad  Company. 


RECEIVED,  lubject  to  the 


in  efiect  on  the  date  of  Umie  of  thii  Bill  of  Lading, 

^£/^f^^eri:</d^i9oy. 


b^ ^^^i^^m^^^pe^ _ ih. 

[oantcnU  and  oi^tioa  of  conUnIa  of  packaRea  unknown),,  mi 
«y  acma  to  cany  to  aaid  destination.  If  on  Ua  road,  otharviat 
jtoany  afreed,  in  consideration  of  the  rata  of  freight  hereinafta 

inj  portion  of  aaid  route  to  deatinalioo,  and  a<  to  each  party  at  any  ti^e  interested  in  all  or  any  of  aa'id  property,  that' every 
to  be  performed  hereunder  shall  be  subject  to  all  the  conditions,  whether  printed  or  written,  herein  oontajned  (see  conditiona 
t  haraof ),  and  which  are  agreed  to  by  the  shipper  and  accepted  for  himself  and  hia  assigns  aa  just  and  reaaooablei 


property  described  below,  in  apparent  good  order,  except  as 

.-  _  IT      '■"•"'own),,  marked,  consigned  and  destined  as  indicated  below,  which  said 

Oompany  agreea  to  carry  to  said  destination.  If  on  Ua  road,  otharwiae  to  delirer  to         " 

It  is  mutually  agreed,  in  consideration  of  the  rale  of  freight  hereinan«r  named,  as  to  each  carrier  of  all  or  any  of  said  property 

all  or  any '■ '  --'"*  — •-  •-  -*— •= — '= —    — -•  —  •-  —-*- ■-    *  —  -■        ■  ■       -   '  •       ■•  *      ■ .  ^._    .l  ..  . 


1  back  I 


CtMipM,. 


vsa^yg^ 


^Mt 


'<^^^(?C{ 


CwMty,. 


DESCRIPTION  OF  ARTICLES. 


...rS^dma. 


The  blank  »pno«a 


'"IPfM';- 


TIm  nu  of  frdght  front 


x^^<4*da^. 


ia,  in  oenU  per  100  poands : — 

,  Third    Class , Sixth    Claaa __ 

_  Fourth  ClaM Special  C\»ai..jZti£k. 

Second  daai Rfth     CIa»_ — 

__„.^_.J^^^.^J^^._„A„ent. 

. , (tWia1in<l>«H»»l«»Mts.wli<t««l;l>«imiim.) 


Fint   Claas,j 
iint    Clan. 


Received  $..... 

to  apply  in  prepayment  of 
the  charges  on  the  property 
described  above. 


m 

EHz 
W% 

a|3m 
ell  5 

3^*00 

c.?gr 

III 
sfl 

n\ 
in 

•3 1 

in 


Sample  Bill  of  Lading. 


for  nearly  all  shipments,  releases  the  carrier  from  lia- 
bility for  any  loss  or  damage  to  the  goods  that  may 
result  from  causes  beyond  the  control  of  the  carrier.  If 
the  shipper  wishes  to  insure  himself  against  all  possibil- 
ity of  loss  or  damage  he  is  charged  a  rate  20  per  cent 


THE  FREIGHT  SERVICE 


123 


own 
goods 


To. 


Via 


Lading., 

Combined  Weight  of  Car  and)  y/  a 

Lading  for  Engine  rating,    (  ._ _...->S^...Net  Ton$. 

o— is-A.  r.  B. 

PENNSYLVANIA  RAILROAD, 

Phila.,  Vilm.  &  Balto.  Railroad,  West  Jeruy  &  Seashore  lUilroaii, 

And  Roads  in  later-Line  STstem. 


From 

Shipper 

Consignee 


y^^^.ir... 


^- 


^i^. — 


higher,  and  this  charge  is  purposely  made  high  by  the 
railroad  companies  in  order  to  induce  the  shippers  to 
send  their  goods  at  their 

risk.       When    the      ^.M.M.x«  h.,.^A.^M.^^ 

reach  their  des- 
tination the  consignee 
presents  the  bill  of  la- 
ding which  he  has  re- 
ceived by  mail,  pays 
whatever  freight  may 
be  due  the  railroad  com- 
pany, and  receives  the 
goods. 

The  freight  agent  re- 
ceipts for  the  goods  and 
makes  out  a  way-bill 
such  as  is  shown  on  page 
125.  This  way-bill 
either  accompanies  the 
freight  or  is  forwarded 
by  mail.  In  the  latter 
case  the  agent  makes  out 
a  ^^  card  way-bill,''  which 
is  given  to  the  conductor 
of  the  freight  train  by 
which  the  car  is  moved 
to  the  destination  shown 
on  the  card  way-bill. 

The  railroad  com- 
pany keeps  account  of 
the  shipment  by  means  of 
the  "way-bill."  Every 
shipment  of  freight  is 
accompanied  by  a  way-bill,  stating  the  number  and  ini- 
tials of  the  car  in  which  the  goods  are  sent,  giving  the 


Destination 


Via 


Prepaid .. 


To  Collect.. 


Marked  Capacity  of  Car dj(2....6?.^/^..M. 


ESTIMATED  WEIGHT. 

Mim. 


ACTUAL  WEIGHT. 
Gross  .MJd^^m, 
Tare..^^,..^/j:?^..bs. 
Net d/.Zm ibs. 


^^...iQ^y^m/.2)^^.jmQ,K^ 

Transferred  to „ Car  No, . -..,-,^ 

At.._....„ _„    Date .„ __190 

Sample  Cakd  W ay-Bill. 


124  AMERICAN   RAILWAY  TRANSPORTATION 

• 
names  of  the  consignor  and  consignee,  the  destination  of 
the  goods,  a  description  of  the  articles  and  their  weight, 
class,  rate,  amount  of  freight  prepaid,  and  amount  of 
freight  to  be  collected.  A  copy  of  every  way-bill  made 
out  by  a  station-agent  fmust  be  sent  to  the  company's 
auditor  of  freight  receipts.  If  the  shipment  made  is 
to  be  through  freight,  a  "  joint "  or  "  interline  "  way- 
bill of  merchandise  is  used.  The  specifications  on  this 
way-bill  are  the  same  as  those  upon  the  ordinary 
way-bill  for  local  freight,  but  a  copy  of  the  bill  must 
be  sent  to  each  of  the  railroads  concerned  in  the  ship- 
ment and  to  any  freight  association  of  which  the  car- 
rier may  be  a  member,  as  well  as  to  the  company's 
auditor  of  freight  receipts.  When  through  freight  is 
billed  to  a  point  that  may  be  reached  by  two  or  more 
routes,  the  agent  must  specify  the  route  the  goods  are 
to  take. 

The  "  freight  bill "  and  "  notice  of  arrival "  (pages 
120  and  121)  are  used  in  the  delivery  of  freight  at 
destination.  The  freight  bill  is  the  statement  of  charges 
and  is  receipted  by  the  agent  when  payment  is  received. 
The  notice  of  arrival  is  the  agent's  notification  to  the 
consignee. 

To  insure  rapidity  and  regularity  in  the  handling  of 
the  freight  traffic,  the  railroad  companies  find  a  system- 
atic organization  of  the  service  necessary.  A  detailed 
record  of  the  daily  movement  and  whereabouts  of  all 
the  cars  in  use  must  be  kept.  If  each  road  used  only 
its  own  cars  it  would  be  a  relatively  easy  matter  to  keep 
this  record,  but  as  a  matter  of  fact  'every  road  uses  ^'  for- 
eign "  cars  (those  belonging  to  other  companies  as  well 
as  its  own),  and  it  has  been  found  necessary  to  do  this 
in  order  to  expedite  the  movement  of  freight  between 
distant  points.  If  every  company  retained  all  of  its  own 
cars  on  its  own  lines,  much  of  the  freight  shipped  long 


%;    = 


i5ll 


C-'l 


i 


i 


1 

Mill 

S3 

^1   II   II     5 

;:                   j: 

1 

1   1   1 

1 

II    1    1    1 

ii 

51    1    1    1    1     5 

^                   fx 

1 

i 

1 

■^-1 

1 

5                5 

s 

f 

1               1 

1    1 

s               1 

.1 
1 

liii 

1 

1 

1 

^  " 

1 

^ 


126  AMERICAN  RAILWAY  TRANSPORTATION 

distances  would  have  to  be  rehandled  en  route,  and  the 
delays  caused  thereby  would  be  burdensome  to  the  busi- 
ness world. 

At  every  important  station  commodities  in  great  vari- 
ety are  received  for  transportation.  In  shipping  articles 
from  one  large  station  to  another,  the  freight  can  usu- 
ally be  sorted  in  such  a  way  as  to  load  each  car  with 
goods  for  a  single  destination.  These  "  straight "  cars 
are  sent  right  through  to  their  destination,  whether  that 
be  a  point  on  the  line  of  the  company  receiving  the 
freight  or  upon  the  road  of  some  connecting  corporation. 
Theoretically,  this  car  when  unloaded  will  be  reladen 
and  returned  to  some  point  on  the  line  of  the  company 
owning  the  car.  It  is  not  always  possible,  however,  to 
find  a  return  load,  and  the  car  may  be  sent  off  to  a  point 
on  the  road  of  some  third  company,  and  may  thence  pur- 
sue a  circuitous  route  before  finally  being  returned  to  the 
company  to  which  it  belongs. 

It  is  not  always  possible  even  at  the  large  stations 
to  select  the  freight  in  such  a  way  as  fully  to  load  all 
cars  with  goods  for  a  single  destination.  Oftentimes  arti- 
cles consigned  to  several  places  must  be  placed  in  the 
same  car.  Cars  so  loaded  are  called  "  mixed  "  cars,  and 
most  of  the  freight  shipped  from  the  smaller  local  sta- 
tions starts  in  mixed  rather  than  in  straight  cars.  To 
reduce  the  number  of  mixed  cars,  and  also  to  lessen 
delays  to  which  local  freight  may  be  subjected,  it  is 
customary  for  the  mixed  cars  sent  out  from  the  stations 
included  within  different  and  specified  regions  to  be  sent 
to  a  junction  point  or  transfer  station  within  the  sec- 
tion. At  these  junction  points,  transfer  freight-houses 
are  provided,  and  the  freight  arriving  in  the  mixed  cars 
from  different  local  points  is  resorted.  It  is  thus  possible 
to  make  up  a  large  number  of  straight  cars  and  to  reduce 
the  number  of  cars  required  for  the  performance  of  the 


THE  FREIGHT  SERVICE  127 

service,  and  to  decrease  the  expenses  incurred  in  getting 
the  commodities  to  their  various  destinations. 

At  the  beginning  of  the  railway  business  each  com- 
pany endeavored  to  keep  its  own  cars  upon  its  own  lines. 
That,  however,  was  found  impracticable,  and  to  expedite 
the  movement  of  certain  kinds  of  joint  or  interline  busi- 
ness, so-called  fast  freight  lines  came  into  existence.  The 
public  is  now  familiar  with  organizations  such  as  the 
Union  Line,  the  Empire  Line,  the  Merchants'  Despatch, 
the  N^ational  Despatch,  and  many  others  of  a  similar 
character.  When  these  fast  freight  lines  were  first 
organized  they  were  usually  managed  by  a  corporation 
distinct  from  the  railroad  companies  over  whose  lines 
the  service  was  performed. 

A  typical  corporation  of  this  kind  was  the  Empire 
Transportation  Company,  chartered  by  the  State  of 
Pennsylvania  in  1865.  This  company,  which  is  still  in 
existence,  was  created  to  increase  the  business  done  over 
the  Philadelphia  and  Erie  Railway,  a  line  connecting 
Sunbury  and  Erie,  Pa.,  and  forming  one  of  the  roads 
joining  'New  York  and  Philadelphia  with  the  oil  regions 
in  western  Pennsylvania  and  the  Great  Lakes.  As  stated 
by  the  company,  its  purpose  was  "  to  increase  conve- 
nience, promptness,  and  safety  in  the  transfer  of  property 
between  inland  points  west  on  the  line  of  the  Philadel- 
phia and  Erie  Railway  and  points  on  the  Atlantic  slope 
and  seaboard  and  in  the  foreign  countries  east  thereof, 
and  to  do  so  in  such  a  manner  as  should  popularize  with 
the  shipping  public  the  route  formed  by  that  railway 
and  its  various  connections.''  Like  other  corporations 
of  its  kind,  the  Empire  Transportation  Company  solicited 
freight,  provided  patrons  with  cars,  charged  such  rates 
for  its  services  as  competitive  conditions  allowed,  paid 
the  railroad  for  hauling  its  cars,  and  retained  the 
remainder  of  its  income  above  expenses  for  distribution 


128  AMERICAN  RAILWAY  TRANSPORTATION 

among  its  stockholders.  To  increase  its  business,  the  Em- 
pire Transportation  Company  built  pipe-lines  within  the 
oil  regions,  developed  terminal  facilities  on  the  seaboard 
and  Great  Lakes,  and  established  transportation  compa- 
nies on  the  Great  Lakes  and  railroad  lines  extending 
westward  from  Pittsburg  and  Ohio  to  Chicago,  Indian- 
apolis, and  other  points  in  the  central  West. 

A  traffic  organization,  such  as  the  Empire  Transpor- 
tation Company  developed,  is  in  many  ways  similar  to 
the  companies  that  were  organized  for  freight  and  pas- 
senger business  over  the  turnpikes  and  toll-roads  in  the 
days  before  railroad  construction  began.  The  companies 
owning  the  road-bed  were  distinct  from  those  performing 
the  service  of  transportation  over  the  road.  Such  a  form 
of  organization  has  certain  advantages,  particularly  for 
securing  traffic  free  to  move  over  different  and  competing 
lines.  It  is  an  efficient  solicitor  for  business.  By  own- 
ing the  cars  it  relieved  the  railroad  companies  of  the 
necessity  for  providing  special  lines  of  business  with  par- 
ticular classes  of  rolling-stock  at  a  time  when  the  rail- 
road companies  were  comparatively  small  organizations. 
With  the  progress  of  the  consolidation  of  railroads,  how- 
ever, the  fast  freight  lines  of  the  class  typified  by  the 
Empire  Transportation  Company  have  ceased  to  be  neces- 
sary, either  to  the  railroads  or  to  the  public.  The  rail- 
road systems  have  reached  such  proportions  and  their 
interline  relations  have  been  so  developed  that  the  rail- 
road companies  are  able  now  without  the  assistance  of 
any  intervening  corporation  to  take  shipments  between 
most  distant  places.  Moreover,  independent  fast  freight 
lines  gave  certain  individuals  an  opportunity  to  divert  to 
themselves  a  part  of  the  profits  which  rightfully  belonged 
to  the  stockholders  of  the  railroad.  Some  of  the  inde- 
pendent fast  freight  lines  were  controlled  by  a  limited 
number  of  the  stockholders  of  the  railroad  corporations 


THE  FREIGHT  SERVICE  129 

over  whose  roads  the  fast  freight  lines  did  business,  and 
an  unduly  large  part  of  the  receipts  for  the  transportation 
business  went  to  the  fast  freight  lines.  The  railroad 
company  received  less  than  its  proper  share  of  the  total 
earnings  derived  from  the  business  done  over  its  lines. 

To  obviate  this  objection,  and  also  to  provide  more 
efficiently  for  the  management  of  interline  business,  the 
"  cooperative "  freight  lines  were  established.  These 
cooperative  freight  lines  represented  merely  a  joint 
arrangement  between  several  connecting  railroads.  Each 
of  the  railroad  companies  forming  the  cooperative  line 
assigns  to  the  line  a  number  of  cars,  usually  in  proportion 
to  the  number  of  miles  of  road.  A  general  manager  is 
put  in  charge  of  the  cooperative  line,  with  agents  at  the 
principal  terminals  to  solicit  business  and  employees  to 
report  the  movement  of  the  line  cars.  The  earnings  of 
the  cooperative  line  and  all  its  expenses  are  divided  pro 
rata  among  the  interested  roads.  Thus  the  cooperative 
freight  line  is  little  more  than  a  system  for  securing 
an  inexpensive  and  honest  administration  of  interline 
business. 

With  the  recent  development  of  the  railway  systems 
and  the  perfection  of  their  methods  of  settling  accounts, 
even  the  cooperative  freight  lines  have  lost  most  of  their 
usefulness.  They  continue  to  be  used  by  the  railway  com- 
panies, although  to  a  less  degree.  Indeed,  they  are 
regarded  by  most  companies  as  little  else  than  trade- 
marks. The  shipping  public  has  become  accustomed  to 
consigning  its  goods  to  certain  fast  freight  lines,  and  for 
that  reason  many  railroad  companies  find  it  easier  to  con- 
trol competitive  business  through  these  fast  freight  lines. 
The  railroads  also  find  these  cooperative  lines  of  assist- 
ance to  them  in  the  settlement  of  accounts  in  connection 
with  their  interline  business.  The  Pennsylvania  Rail- 
road system,  for  instance,  comprises  a  large  number  of 


130  AMERICAN  RAILWAY  TRANSPORTATION 

affiliated  corporations;  and  the  business  passing  between 
the  lines  east  of  Pittsburg  and  those  west  of  that  city  is 
necessarily  treated  as  through  traffic.  The  accounts  of 
the  through  business  handled  over  the  Pennsylvania  lines 
are  audited  by  the  auditor  of  the  Union  Line,  who  thus 
in  reality  acts  as  the  manager  of  a  clearing-house.  This 
Union  Line  was  organized  in  1863  as  an  independent  fast 
freight  line  between  eastern  and  western  points  over  the 
lines  of  the  Pennsylvania  Railroad  system;  but  in  18Y3 
the  Pennsylvania  Railroad  Company  having  secured  abso- 
lute control  of  all  the  roads  over  which  the  Union  Line 
operated,  purchased  the  Union  Line  and  made  it  a  bureau 
of  the  Pennsylvania  Railroad  Company.  Since  then  the 
Union  Line  organization  has  been  that  of  the  coopera- 
tive fast  freight  line  entrusted  by  the  Pennsylvania  Rail- 
road with  the  duty  of  auditing  the  company's  interline 
business. 

As  the  foregoing  paragraph  would  indicate,  there  is 
no  railway  clearing-house  through  which  the  accounts  of 
all  the  railroads  of  the  United  States  are  settled.  In 
England  the  railroad  companies  are  all  members  of  a 
clearing-house,  which  was  chartered  by  Parliament  in 
1850.  The  British  Railway  Clearing-House  collects  all 
the  charges  and  distributes  the  earnings  of  the  through 
business.  The  railroad  companies  themselves  audit  only 
the  local  business. 

If  a  railway  clearing-house  for  the  entire  United 
States  were  possible,  it  would  be  a  very  desirable  institu- 
tion. It  would .  not  only  simplify  and  economize  the 
accounting  of  railway  business,  but  would  also  do  away, 
to  a  large  extent,  with  the  opportunity  and  the  incentive 
for  cutting  rates  and  for  granting  special  favors  to  indi- 
vidual shippers  by  deviating  from  schedule  rates.  It 
seems,  however,  that  the  United  States  is  too  large  a 
country  and  its  railroad  system  too  vast  and  intricate 


THE  FREIGHT  SERVICE  131 

for  the  successful  operation  of  a  clearing-house  for  the 
entire  country.  It  is  not  impossible  that  different  sec- 
tions of  the  United  States  may  eventually  each  have  its 
own  clearing-house.  Inasmuch  as  the  railroads  of  the 
United  States  are  rapidly  being  divided  territorially  and 
according  to  ownership  into  a  small  number  of  groups, 
it  may  be  found  advantageous  to  establish  a  clearing- 
house in  each  one  of  these  territorial  sections. 

The  railroad  companies  do  not  furnish  all  the  cars 
used  by  shippers.  Many  large  shippers  prefer  to  own 
their  own  cars  in  order  that  they  may  be  able  to  ship 
their  goods  whenever  they  desire  to  do  so  and  in  cars 
especially  adapted  to  the  needs  of  their  business.  The 
large  meat-packers  in  Chicago,  Omaha,  and  other  cen- 
ters of  the  packing-house  business  own  their  own  cars, 
and  this  is  also  true  to  some  extent  of  Western  fruit- 
growers, the  shippers  of  petroleum  oil,  and  the  manufac- 
turers of  certain  kinds  of  heavy  machinery.  The  man 
who  uses  his  own  cars  for  the  shipment  of  his  goods  pays 
the  railroad  company  the  ordinary  freight  rate,  unless, 
aa  has  frequently  been  the  case  in  the  past,  he  receives 
a  special  reduction  in  the  freight  charge.  The  railroad 
company  pays  him  a  fixed  amount  per  mile  for  the  use 
of  the  car.  In  times  past  this  car  mileage  was  as  much  as 
a  cent  a  mile.  It  is  now  six-tenths  of  a  cent  a  mile  for 
ordinary  cars.  For  refrigerator-cars  the  rate  is  one  cent 
a  mile  in  the  West  and  three-fourths  of  a  cent  a  mile  in 
the  East. 

There  are  certain  objections  to  the  system  of  private 
cars.  They  have  frequently  led  to  unjustifiable  discrim- 
inations between  the  large  and  small  shippers,  the  man 
who  owns  his  own  cars  and  ships  in  large  quantities  being 
able  to  obtain  special  favors  from  the  railroad  company. 
The  tendency  on  the  part  of  the  railroad  companies  at 
present  is  to  limit  the  use  of  private  cars  as  much  as 


132  AMERICAN  RAILWAY  TRANSPORTATION 

possible  by  supplying  themselves  with  all  the  equipment 
needed  by  different  classes  of  shippers,  and  the  use  of 
private  cars  may  eventually  be  limited  to  a  small  number 
of  industries.  At  the  present  time,  however,  the  number 
of  private  cars  in  use  seems  large.  Their  exact  number 
is  not  known,  but  there  are  about  120,000,  or  about  7 
per  cent  of  the  total  number  of  cars  owned  by  the  railroad 
corporation. 

When  a  railroad  company  makes  use  of  a  car  belong- 
ing to  another  company,  it  pays  the  owning  corporation 
a  rental  for  the  use  of  the  car.  Until  very  recently  this 
rental  has  consisted  entirely  of  "  car  mileage,"  and  for 
many  years  this  car-mileage  payment  amounted  to  three- 
fourths  of  a  gent  per  mile  run  by  the  car;  latterly  the 
payment  has  been  six-tenths  of  a  cent  per  car  per  mile. 
This  form  of  payment  did  not  work  to  entire  satisfaction, 
because  a  company  might  retain  a  foreign  car  a  long  time 
without  moving  that  car  more  than  a  short  distance. 
The  owner  of  the  car  under  those  conditions  received 
a  very  small  rental.  Shippers  are  frequently  desirous 
of  using  the  cars  for  storage  purposes,  and  the  railroad 
corporation  is  apt  to  favor  the  shipper  by  granting  the 
concession,  particularly  if  the  cars  used  for  storage  do 
not  belong  to  the  company  making  the  concession.  Ac- 
cordingly, the  leading  railroads  of  the  United  States  have 
finally  adopted  the  per  diem  system  of  payment  for  the 
use  of  cars.  By  this  system  a  corporation  using  a  for- 
eign car  pays  the  owner  20  cents  per  day  for  .the 
time  the  car  is  in  its  possession.  Being  required  to  make 
this  per  diem  payment  for  the  use  of  the  car,  it  will  be 
to  the  interest  of  every  railroad  to  return  foreign  cars 
to  their  owners  with  as  little  delay  as  possible. 

It  is  customary  to  allow  the  person  to  whom  goods 
are  shipped  a  certain  length  of  time — generally  forty- 
eight  hours — ^within  which  to  unload  the  goods  sent  to 


THE   FREIGHT  SERVICE  133 

him.  If  he  does  not  take  his  goods  out  of  the  car  within 
this  time,  he  is  charged  a  "  demurrage/'  which  usually 
amounts  to  $2  per  day.  Railroad  companies  dislike  to 
enforce  demurrage  charges  against  their  patrons,  and 
under  the  conditions  of  competition  that  prevail  in  busi- 
ness affairs  many  railroad  companies  have  not  collected 
the  demurrage  when  the  cars  did  not  belong  to  them  or 
when  the  demand  for  their  own  cars  was  not  very  urgent. 
To  collect  demurrage  from  some  patrons  and  not  from 
others  constitutes  an  unjust  discrimination,  the  prevention 
of  which  is  desirable  both  from  the  standpoint  of  the 
public  and  from  the  standpoint  of  the  railroads.  The 
per  diem  method  of  car  rental  is  causing  the  railroad  cor- 
porations to  return  foreign  cars  more  promptly  and  is 
giving  the  companies  a  reason  for  collecting  without  dis- 
crimination the  demurrage  charges. 

EEFEEENCES    FOR    FURTHER    READING 

The  American  Railway.  Paper  on  Railway  Management,  by  E.  P. 
Alexander,  pp.  149-186;  also  paper  on  The  Freight-Car  Service, 
by  Theodore  Voorhees,  pp.  267-297. 

For  the  classification  of  freight  the  following  references  may  be  con- 
sulted : 

1.  Report  of  Industrial  Commission,  vol.  ix,  pp.  Ixxxii-xc  and  652- 

687. 

2.  Fourth  Annual  Report  of  the  Interstate  Commerce  Commission, 

pp.  197-239. 

3.  A  copy  of  a  freight  classification,  which  may  be  secured  from  any 

railroad  company. 
For  a  discussion  of  fast  freight  lines  consult : 

1.  Hadley,  a.  T.     Railroad  Transportation,  pp.  87-90. 

2.  Report  of  Industrial  Commission,  vol.  ix,  pp.  xcv,  613,  724. 
For  information  concerning  the  railway  clearing-house: 

1.  FiNDLAY,  G.     The  Working  and  Management  of  an  English  Rail- 

way.     [Contains  an  account  of  the   British  Railway  Clearing- 
House.] 

2.  Report  of  Industrial  Commission,  vol.  ix,  pp.  xcvii,  718-731.    [This 


134  AMERICAN  RAILWAY  TRANSPORTATION 

is  the  testimony  submitted  to  the  commission  by  Mr.  William 
Nicholson,   manager   Central  Railway  Clearing-House,   Buffalo, 
N.  Y.] 
The  subject  of  private  cars  is  discussed  in : 

1.  MiDGELEY,  J.  W.     Private  Cars:  An  Inquiry  into  their  Growth, 

Development,  and  Operations.  [A  series  of  papers  printed  in  the 
Railway  Age,  Chicago,  October  10  and  17,  November  7  and  21, 
December  19,  1902,  and  January  16,  1903.] 

2.  Sixteenth  Annual  Report  of  Interstate  Commerce  Commission. 

1902. 
On  the  per  diem  plan  of  payment  for  the  use  of  cars  consult : 
The  Railroad  Gazette,  February  17,  1899,  October  11,  1901,  and  the 

indexes  of  the  volumes  of  the  Railroad  Gazette  for  the  years  1901 

and  1902. 


CHAPTEK   X 

THE    PASSENGER    SERVICE 

The  service  of  transporting  persons  differs  in  several 
particulars  from  the  freight  service.  Goods  are  shipped; 
men  travel  of  their  own  volition,  controlling,  in  most 
instances,  the  time  and  direction  of  their  movements. 
This  fundamental  distinction  necessitates  an  organization 
of  the  freight  service  different  from  that  required  by 
the  passenger  business.  Freight  rates  and  passenger 
fares  are  charges  levied  for  dissimilar  services,  and 
to  a  large  extent  are  determined  by  different  consid- 
erations. 

One  important  difference  between  the  two  branches 
of  the  service  is  that  most  freight  is  moved  in  car-loads 
or  train-loads,  the  car  or  train  being  started  when  the 
car  is  loaded  or  the  train  is  made  up,  while  the  passenger 
business  is  performed  by  trains  that  run  on  fixed  sched- 
ules. This  distinction,  however,  does  not  apply  in  all 
cases.  Some  commodities,  like  milk  and  fresh  fruit,  are 
despatched  by  trains  which  run  strictly  according  to 
schedule,  and  the  collection  and  distribution  of  the  traffic 
at  the  local  centers  of  production  or  consumption  are 
usually  accomplished  by  "  way-freight "  trains  which 
have  a  more  or  less  definite  time  of  arrival  and  depar- 
ture. Frequently  the  "  milk "  trains  and  way-freight 
trains  have  passenger-coaches  attached,  and  thus  perform 
a  mixed  service ;  but  the  larger  share  of  the  freight  traffic 
is  handled  in  trains  whose  time  of  departure  is  arranged 

135 


136  AMERICAN  RAILWAY  TRANSPORTATION 

with  reference  to  the  volume  of  goods  offered  for  ship- 
ment, while  passenger-trains  are  despatched  according  to 
prearranged  schedules,  whether  many,  few,  or  no  persons 
present  themselves  at  the  station. 

The  passenger  service,  moreover,  to  a  far  greater  de- 
gree than  is  required  in  the  freight  business,  must  pro- 
vide for  speed,  safety,  comfort,  and  convenience.  While 
speed  and  regularity  of  service  is  demanded  by  the  ship- 
pers of  some  classes  of  commodities,  the  great  demand  is 
for  cheap  transportation,  for  low  rates,  and  to  meet  this 
demand  the  railroad  companies  have  constantly  striven  to 
reduce  the  costs  of  handling  and  moving  goods.  On  the 
contrary,  in  the  passenger  service  railroad  officials  have 
striven  to  give  a  better  service,  to  increase  speed,  provide 
for  greater  safety,  and  to  minimize  the  discomforts  of 
travel.  Travelers  in  most  countries,  and  particularly  in 
the  United  States,  seem  to  prefer  a  good  although  ex- 
pensive service  to  inferior  aqpommodations  at  low  fares. 
Whether  this  is  true  of  all  classes  of  American  people  is 
open  to  question;  but  there  is  no  doubt  that  excellence 
rather  than  economy  has  been  the  goal  in  the  develop- 
ment of  the  passenger  service. 

Among  the  results  following  from  the  pursuit  of  these 
different  aims  in  the  two  main  branches  of  the  railroad 
business  has  been  an  increase  in  the  average  freight-train 
load,  but  no  gain  in  the  average  number  of  persons  per 
passenger-train.  In  1890  the  number  of  tons  of  paying 
freight  per  train  averaged  175  tons,  in  1900  the  average 
was  275  tons.  The  number  of  passengers  per  train  was 
41  in  1890,  and  also  in  1900;  in  1892  the  average  was 
42;  and  in  1894,  44.  There  was  an  increase  in  the  num- 
ber of  people  carried  and  in  the  distance  traveled  by 
them,  but  the  growing  demand  for  frequency  of  service, 
speed,  and  comfort  caused  more  trains  to  be  run  to 
accommodate  the  traffic. 


THE  PASSENGER  SERVICE 


137 


Another  result  has  been  a  more  rapid  decline  in 
freight  rates  than  in  passenger  fares.  The  facts  regarding 
rates,  fares,  and  revenue  are  indicated  by  the  following 
figures : 


1890. 

1895. 

1900. 

1901. 

Revenue  per  passenger  per  mile,  cents 

Revenue  per  ton  of  freight  per  mile,  cents. 

Revenue  per  train  mile,  passenger-trains, 

dollars 

2.167 
.941 

1.086 

1.654 

2.040 
.839 

.978 

1.612 

2.003 
.729 

1.010 

2.000 

2.013 
.750 

1  027 

Revenue    per    train    mile,    freight-trains, 
dollars. 

2.132 

From  1890  to  1900  passenger  earnings  per  passenger 
mile  declined  8  per  cent,  and  from  1895  to  1900  2  per 
cent.  During  the  decade  freight  earnings  per  ton  mile 
fell  off  23,  and  from  1895  to  1900  13  per  cent.  In  the 
freight  service  the  decrease  in  rates  was  more  than  offset 
hj  the  introduction  of  more  economical  methods  of  con- 
ducting the  business,  so  that  there  was  a  large  gain  in 
the  earnings  per  mile  run  by  freight-trains;  but  in  the 
passenger  service  that  was  not  possible,  and  the  train 
mile  revenue  fell  off  slightly.  The  figures  for  1900  and 
1901  reflect  the  influence  of  the  highly  prosperous  times 
then  prevailing,  and  show  an  arrest  in  the  downward 
tendency  of  rates  and  fares,  but  it  is  not  probable  that 
railroad  charges  will  continue  to  rise  when  business 
again  becomes  less  active  and  traffic  falls  off;  indeed, 
it  is  probable  that  freight  rates,  at  least,  will  again  tend 
to  decline. 

Another  difference  between  the  freight  and  passenger 
services  arises  from  the  fact  that  freight  has  to  be  loaded 
and  unloaded  at  terminals,  and  yards  and  depots  have  to 
be  provided  for  storing  cars  and  goods.  The  terminal 
costs  in  the  freight  service — labor,  yardage,  and  storage 
— constitute  a  larger  share  of  the  total  expenses  than 


138  AMERICAN  RAILWAY  TRANSPORTATION 

is  the  case  in  the  passenger  branch  of  the  business.  In 
the  large  cities,  passenger  stations  are  large  structures 
located  where  real  estate  is  valuable,  but  they  cost  less 
than  do  the  facilities  for  handling  freight,  and  passengers 
not  only  board  and  leave  the  trains  without  assistance, 
but  do  so  promptly  upon  the  arrival  of  the  train,  so  that 
the  railroad  company  is  obliged  to  provide  neither  exten- 
sive yardage  for  the  coaches  nor  housing  accommodations 
for  the  traveling  public,  except  for  the  brief  time  they 
must  wait  for  trains. 

Another  fact  affecting  the  cost  of  the  service,  the 
utilization  of  cars,  and  the  methods  of  conducting  the 
business,  is  that  passenger  travel  is  practically  the  same 
in  each  direction.  People  who  leave  home,  return  to 
their  homes;  but  commodities  are  shipped  from  the  places 
of  production  to  the  localities  where  they  are  to  be  used 
or  consumed;  and  while  every  one  who  produces  is  also 
a  consumer,  those  who  supply  the  world  with  foods  and 
raw  materials  dispose  of  much  more  tonnage  than  they 
purchase.  In  the  United  States  the  freight  from  the 
Western  and  Southern  States  to  the  seaboard  and  to 
the  manufacturing  centers  is  much  heavier  than  that 
toward  the  interior  of  the  country.  If  freight  traffic 
were  equal  in  each  direction,  the  average  train-load 
would  be  heavier  and  the  costs  of  transportation  would 
be  less.  In  spite  of  the  equilibrium  of  travel  to  and  fro, 
the  average  passenger-train  carries  only  42  persons,  or 
about  three  tons  of  paying  load,  so  strong  are  the  forces 
compelling  frequency,  speed,  and  luxury  in  the  service. 
If  travel,  like  the  movement  of  commodities,  were  mainly 
in  one  direction,  the  coaches  would  contain  fewer  passen- 
gers on  an  average  than  they  now  do,  and  the  fares  would 
need  to  be  higher  than  under  existing  conditions. 

The  number  of  passenger  trips  taken  on  American 
railroads  in  1900  was  576,865,230,  and  in  1901  607,278,- 


THE  PASSENGER  SERVICE  139 

121.  The  greatest  number  reported  for  any  previous 
year  was  for  1893,  when  the  ^Columbian  Exposition  at 
Chicago  caused  the  figures  for  that  year  to  reach  593,- 
560,612.  The  aggregate  length  of  the  trips  taken  in  1900 
was  over  16,000,000,000  miles,  the  average  journey  per 
passenger  or  the  average  length  of  a  trip  being  27.8 
miles.  The  increase  in  speed  of  trains  and  in  the  com- 
forts of  travel  is  being  accompanied  by  a  greater  amount 
of  long-distance  travel,  the  average  trip  having  length- 
ened nearly  4  miles  since  1890. 

The  revenue  derived  directly  from  the  passenger 
service  was  $323,715,639  in  1900,  and  $351,356,265  in 
1901.  The  income  from  the  carriage  of  mail  and  ex- 
press, and  from  other  earnings  attributable  to  the  passen- 
ger service,  was  $74,300,000  in  1900  and  $77,778,197  in 
1901.  From  the  operation  of  passenger-trains  about  one- 
fourth  of  the  total  income  of  the  railroad  companies  is 
received.  In  New  England  the  passenger  revenues  com- 
prise a  much  larger  share  of  the  total,  four-ninths  of  the 
earnings  from  operation  being  derived  from  the  passen- 
ger-trains. In  general,  the  passenger  receipts  as  com- 
pared with  those  from  freight  are  relatively  greater  the 
more  thickly  the  region  served  by  the  railroads  is  settled; 
but  such  a  district  as  that  occupied  by  the  Kocky  Moun- 
tain and  Pacific  coast  States  of  the  United  States  is  an 
exception  to  the  general  rule.  That  part  of  the  United 
States  ranks  next  to  'New  England  as  regards  the  ratio 
of  passenger  revenue  to  total  receipts  from  railroad 
traffic. 

The  foregoing  figures  show  that  the  people  of  the 
United  States  travel  frequently;  but  a  comparison  of  our 
country  with  the  European  countries  having  the  most 
highly  developed  means  of  transportation  indicates  a 
greater  use  of  the  railroads  for  travel  by  some  foreign 
people   than  by   Americans.      Although   there   is   a   far 


140  AMERICAN  RAILWAY  TRANSPORTATION 

greater  mileage  of  railroad  in  the  United  States  than  in 
any  other  country,  the  network  of  lines  is  spread  over  a 
vast  extent  of  territory,  and  in  a  large  part  of  the  country 
serves  a  scattered  and  sparse  population;  while  in  the 
United  Kingdom  nearly  half  as  many  people  as  there  are 
in  the  entire  United  States  dAvell  within  an  area  the  size 
of  three  American  States  of  medium  proportions.  Long 
distances  deter  people  from  traveling  for  pleasure,  and 
induce  men,  when  possible,  to  do  business  by  mail  and 
telegraph.  The  conditions  favoring  travel  are  a  dense 
population  living  mainly  in  cities  and  having  an  average 
income  large  enough  to  make  travel  possible. 

The  people  of  the  United  Kingdom  take  nearly  twice 
as  many  trips  as  Americans  do,  although  there  are  nearly 
twice  as  many  people  in  our  country  as  there  are  in  theirs 
— i.  e.,  the  average  number  of  trips  per  year  per  person 
taken  by  the  Briton  is  about  27,  while  the  American's 
average  is  about  Y.5.  In  the  number  of  passenger  trips 
taken  yearly,  the  rank  of  the  United  States  among  other 
countries  is  approximately  as  follows:  The  United  King- 
dom, 27;  Belgium,  17;  Switzerland,  15;  Germany,  12; 
France,  10;  and  the  United  States,  7.5.  The  significance 
of  these  figures  is  modified  by  the  greater  average  length 
of  the  trip  taken  by  the  American,  who  travels  a  few 
more  miles  each  year  than  does  the  inhabitant  of  any 
other  country  except  the  United  Kingdom,  although  the 
difference  between  Germany,  France,  and  the  United 
States  in  this  regard  is  small.  The  passenger  trafiic  on 
European  railroads  is  much  denser  than  on  those  in  the 
United  States.  An  equal  mileage  of  road  accommodates 
a  much  greater  traffic  in  Europe  than  in  the  United 
States.  This  is  shown  by  dividing  the  total  number  of 
miles  traveled  by  all  passengers  (the  "  passenger  miles  ") 
by  the  miles  of  railroad.  Such  a  calculation  shows  the 
miles  traveled  per  mile  of  railroad  to  be  about  400,000 


THE  PASSENGER  SERVICE  141 

in  the  United  Kingdom,  343,000  in  Germany,  283,000  in 
France,  and  72,000  in  the  United  States.^ 

In  all  countries,  the  United  States  included,  passen- 
ger accommodations  of  different  degrees  of  excellence  are 
provided  by  the  railroads,  the  charge  for  the  best  class  of 
service  being  more  than  for  the  lower  classes.  In  Euro- 
pean countries,  from  three  to  five  grades  or  classes  of 
service  are  offered.  In  the  United  Kingdom  and  most 
of  the  Continental  countries  there  are  three  classes — first, 
second,  and  third;  but  in  Germany  there  are  four  classes, 
besides  special  accommodations  for  the  military,  which 
may  be  considered  a  fifth  class.  In  the  military  and 
fourth  classes  the  coaches  are  but  little  better  than  box 
freight-cars,  sometimes  with  and  sometimes  without 
benches.  The  third-class  car,  or  compartment,  contains 
comfortable  seats  without  upholstery,  and  until  recently 
the  third-class  hq.d  no  toilet  accommodations.  In  the  sec- 
ond-class the  passenger  is  given  more  room,  he  has  an 
upholstered  seat,  and  his  compartment  has  an  adjoining 
toilet.  The  first-class  compartment  has  more  elegant 
fittings  and  appointments  than  the  second-class,  but  the 
comforts  are  practically  the  same. 

The  traveling  public  in  Europe  desires  this  classifi- 
cation for  two  reasons:  one  economic,  and  the  other 
purely  social.  The  great  majority  of  the  people  wish  to 
travel  inexpensively,  preferring  economy  to  luxury,  and 
their  demand  for  a  cheap  service  is  met  by  the  railroads 
in  the  third  and  fourth  classes,  and  in  the  slow  trains 
upon  which  lower  fares  are  charged  than  on  the  fast 
trains.     The  minority  of  the  passengers  are  able  to  pay 

^  The  facts  in  this  paragraph  are  taken  from  calculations  made  by- 
Walter  E,  Weyl,  Ph.  D.  The  table  on  page  142,  prepared  by  him,  was 
submitted  to  the  Industrial  Commission  and  is  contained  in  the  com- 
mission's report,  vol.  iv,  p.  758.  Further  data  on  this  subject  may  be 
found  in  Dr.  Weyl's  work  on  The  Passenger  Traffic  of  Railways. 


142 


AMERICAK  RAILWAY  TRANSPORTATION 


Freight 
density. 
(Ton  miles 
divided  by 
miles  of 
railroad. 
Net  tons.) 

S      : 

1 

J 

oo" 

Passenger 
density. 
(Passen- 
ger miles 
divided  by 
miles  of 
railroad.) 

i 

i 

■i 

Reve- 
nue per 
passen- 
ger 
train 
mile,  a 

1- 

• 

Num- 
ber of 
passen- 
gers per 
train. 

p 

OS 
00 

tH 

lO         OS 
«0 

Re- 
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per  pas- 
senger 

per 
mile. 

1! 

t- 

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Re- 
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per 
passen- 
ger. 

Is 

oc 

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«9.0 
52.6 

Aver- 
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length 
of  trip 
in  miles 

HZ 

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Num- 
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pas- 
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miles 
per 
head  of 
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Number 
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per  head 
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Number 
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Number  of 
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THE  PASSENGER  SERVICE 


143 


high  fares  for  more  elegant  accommodations  and  for  the 
social  distinction  attaching  to  traveling  in  a  class  above 
that  taken  by  most  people.  In  countries  where  social 
divisions  are  sharply  drawn,  the  larger  fares  exacted  for 
the  second  and  first  classes  as  compared  with  the  third 
are  paid  mainly  because  the  first  and  second  classes  are 
taken  by  only  a  few  people. 

In  countries  where  there  are  only  three  classes,  about 
nine-tenths  of  the  passengers  ride  third-class,  and  where 
there  are  four  classes  somewhat  more  than  nine-tenths 
choose  the  two  lower  classes.  The  first-class  is  patronized 
less  than  any  other.  The  division  of  passengers  among 
the  several  classes  in  nine  representative  foreign  coun- 
tries is  shown  by  the  following  table,  prepared  by  Dr. 
Walter  E.  Weyl  for  the  Industrial  Commission: 

Divisions  of  Passenger  Travel  in  Various  Classes  in 
Various  Countries 


Country. 


Germany 

Switzerland 

Belgium  (state). , 
India : 

Broad -gage  . . . 
►     Meter-gage  . . , 

Norway 

Sweden  (state) . . . 

Denmark 

United  Kingdom 
Italy 


Year. 


1898 
1897 
1897 

1897 
1897 
1898 
1897 
1898 
1898 
1892 


PER  CENT  OP  ALL  PASSENGERS  IN  CLASS. 


0.37 

.94 

3.07 

.5 

.3 

.1 

.3 

.6 
3.1 
4 


9.5 

14.47 
10.19 

2.8 

1.4 

7.3 

13.2 

12.7 

6.2 

24.3 


60.8 

84.59 

86.74 

4.8 
1 
92.6 

84.8 
86.7 
90.7 
71.7 


27.63 


91.9 
97.3 


Military 
class. 


1.7 


1.7 


Total. 


100 
100 
100 

100 
100 
100 
100 
100 
100 
100 


In  the  United  States,  passengers  do  not  divide  them- 
selves into  classes  to  the  extent  that  is  customary  in  most 
foreign  countries,  but  the  railroads  of  our  country  fur- 
nish different  grades  of  service  corresponding  in  a  gen- 


144  AMERICAN  RAILWAY  TRANSPORTATION 

eral  way  to  the  classes  found  on  foreign  roads.  Most  of 
the  travel  in  America  is  on  first-class  tickets;  but  most 
companies  sell  second-class  tickets;  and  on  the  routes  over 
which  travel  justifies  them,  excursion  and  immigrant 
trains  are  run  which  provide  inferior  accommodations  and 
transportation  at  rates  cheaper  than  those  charged  second- 
class  passengers.  Above  the  first-class  accommodations 
are  those  furnished  in  the  parlor-cars  and  sleeping-cars. 
Thus  the  passenger  service  in  this  country  comprises  three 
regular  grades :  the  "  Pullman "  service,  as  the  parlor- 
and  sleeping-car  accommodations  are  most  frequently 
called,  the  first-class,  and  the  second-class,  and  from  time 
to  time  includes  a  fourth  grade,  the  cheap  excursion  and 
immigrant  trains. 

The  patronage  of  the  "  extra-fare  "  cars  and  trains  is 
increasing,  and  on  the  main  routes  of  long-distance  travel 
the  best  trains  consist  entirely  of  parlor-,  sleeping-,  and 
dining-cars.  Over  these  routes  and  over  many  of  the 
shorter  ones  the  principal  trains  carry  both  parlor  and 
day  coaches — that  is,  regularly  provide  two  classes  of 
service.  The  holder  of  the  second-class  ticket  is  usually 
required  to  sit  in  the  smoking-car,  but  occasionally  sepa- 
rate accommodations  are  provided  for  him.  Second-class 
passenger  trafiic  is  not  stimulated  in  the  United  States, 
and  the  volume  of  that  class  of  travel  is  probably  de- 
clining. This  may  be  expected  to  continue  until  the. 
railroads  change  their  policy  and  run  second-class  trains 
and  cars  as  a  regular  part  of  their  service.  Cheap  excur- 
sion trains  are  on  the  increase.  Year  by  year  the  wage- 
earners  are  becoming  more  able  to  travel,  and  the  induce- 
ments to  do  so  are  multiplying.  The  excursion  business 
is  profitable  to  the  railroad  companies,  and  will  doubtless 
be  developed  much  beyond  its  present  scope. 

Freight  and  passengers  are  classified  in  a  different  way 
and  for  unlike  purposes,  but  in  some  particulars  the  rea- 


THE  PASSENGER  SERVICE  145 

son  for  the  classification  is  the  same.  Differences  in  the 
cost  of  the  service  and  in  the  ability  of  the  article  to  pay 
charges  determine  the  class  to  which  a  commodity  is 
assigned  and  the  rate  which  it  must  bear;  likewise  the 
fares  collected  for  each  of  the  several  grades  or  classes 
of  passenger  service  are  fixed  with  reference  to  differ- 
ences in  the  costs  of  the  service  and  in  the  ability  and 
willingness  of  various  classes  of  travelers  to  pay.  In 
the  passenger,  as  well  as  the  freight  business,  the  range 
of  charges  as  between  the  higher  and  lower  classes  is 
much  greater  than  the  difference  in  the  costs  of  service. 

Most  American  railroad  companies,  unlike  those  in 
foreign  countries,  place  the  sleeping-,  parlor-,  and  dining- 
car  services  in  charge  of  a  separate  company.  The  Pull- 
man Palace-Car  Company,  of  Chicago,  from  the  begin- 
ning of  this  service  nearly  forty  years  since,  has  owned 
and  operated  most  of  the  cars  in  use.  For  many  years 
the  Wagner  Palace-Car  Company,  of  Buffalo,  built  and 
managed  from  one-fourth  to  one-third  of  the  sleeping-, 
parlor-,  and  dining-cars,  the  Vanderbilt  interests  control- 
ling the  company.  In  1899  the  two  companies  consoli- 
dated under  the  name  of  the  Pullman  Company,  and  at 
the  present  time  that  company  controls  all  these  extra- 
fare  cars  excepting  the  relatively  small  number  operated 
by  the  railroad  companies.  The  Chicago,  Milwaukee  and 
St.  Paul,  the  Canadian  Pacific,  the  Great  Northern,  the 
'New  York,  New  Haven  and  Hartford  systems,  and  a  few 
other  companies,  now  run  their  own  cars  exclusively. 

The  railroads  pay  the  Pullman  Company  mileage 
(about  one  cent  per  car  mile  run)  for  the  tise  of  the 
coaches,  and  the  Pullman  Company,  in  addition  to  this 
revenue  from  mileage,  receives  the  extra  fares  paid  by 
the  passengers  for  the  privilege  of  riding  in  the  parlor- 
or  sleeping-car.  The  railroad  company  receives  the  regular 
fares  paid  for  the  first-class  tickets,  the  Pullman  accom- 
11 


146  AMERICAN  RAILWAY  TRANSPORTATION 

modations  being  obtainable  only  by  those  having  first- 
class  tickets.  On  some  especially  fast  trains  the  railroads 
charge  more  than  the  usual  first-class  fare,  to  cover  the 
additional  expense  of  running  the  trains  at  a  high  speed. 
The  parlor-  and  sleeping-coaches  are  much  heavier  than 
the  ordinary  first-class  day  coach,  and  have  accommoda- 
tions for  fewer  people;  hence  the  profits  received  by  the 
railroads  from  the  parlor-  and  sleeping-car  traffic  are 
really  smaller  than  those  obtained  from  the  day  coach 
service.  Some  one  has  said  that  "  the  man  who  sits  up 
all  night  in  the  day  coach  helps  pay  for  the  fare  of  the 
man  who  rides  in  the  Pullman  car."  This,  however,  is 
not  strictly  accurate,  because  the  parlor-  and  sleeping- 
car  service  is  probably  not  often  conducted  at  a  loss. 

The  railroad  companies  have  found  it  to  their  advan- 
tage to  rent  the  parlor-  and  sleeping-coaches  instead  of 
owning  them,  because  the  Pullman  Company,  having  con- 
trol of  a  great  number  of  cars,  is  able  to  supply  the  rail- 
road with  just  the  number  of  cars  required.  The  number 
of  Pullman  cars  required  by  a  railroad  company  varies 
with  the  volume  of  travel,  which  is  greater  in  some  seasons 
of  the  year  than  in  others,  and  which  may  temporarily 
be  largely  increased  by  some  convention,  exposition,  or 
other  extraordinary  event.  When  one  railroad  company 
or  one  section  of  the  country  has  a  large  demand  for 
coaches,  some  other  company  or  section  will  probably 
not  need  more  than  the  usual  quota,  and  the  Pullman 
Company  is  thus  able  to  distribute  the  cars  economically 
according  to  the  needs  of  the  service.  If  each  railroad 
company  owned  coaches  enough  to  supply  its  needs  when 
the  travel  over  its  lines  was  heaviest,  some  companies 
would  have  on  hand  a  large  number  of  idle  coaches 
much  of  the  time.  This  condition,  however,  is  being 
changed  by  the  railroad  consolidations  and  the  develop- 
ment of  systems  serving  large  sections  of  the  country.    A 


THE  PASSENGER  SERVICE  147 

railroad  system  such  as  the  Southern,  the  Pennsylvania, 
the  Vanderbilt,  or  the  Morgan-Hill  lines,  operates  over 
such  a  wide  stretch  of  country  that  the  volume  of  travel 
on  its  system  as  a  whole  must  vary  within  a  small  enough 
range  to  enable  the  company  to  employ  its  parlor-  and 
sleeping-  and  dining-car  equipment  economically.  No 
such  a  company  as  the  Pullman  could  absorb  practically 
all  the  field  were  it  to  start  under  the  conditions  now  pre- 
vailing, but  having  acquired  the  business  as  it  developed, 
the  Pullman  Company  will  doubtless  continue  for  some 
time  to  come  to  perform  the  service  it  is  now  rendering. 
Eventually,  however,  the  large  railroad  companies  will 
probably  own  and  operate  the  sleeping-,  dining-,  and  par- 
lor-cars used  on  their  several  lines. 

The  agents  at  all  stations  are  supplied  with  both  local 
tickets  good  between  stations  on  the  line  of  the  selling 
company  and  with  through  or  interline  tickets  valid  on 
connecting  lines.  The  arrangements  for  traveling  long 
distances  over  the  roads  of  several  companies  are  as 
complete  as  are  the  facilities  for  shipping  freight  on 
through  bills  of  lading.  By  ticketing  through  to  desti- 
nation, the  passenger  is  privileged  to  check  his  baggage 
to  the  same  point,  and  thus  to  lessen  the  inconveniences 
of  the  journey.  The  baggage  arrangements  in  the  United 
States  are  superior  to  those  in  most  foreign  countries, 
and  the  American  railroads  are  especially  liberal  in  the 
weight  of  baggage  which  a  passenger  may  take  without 
extra  charge.  In  the  United  Kingdom  the  passenger 
receives  no  baggage  check,  and  is  obliged  to  identify 
and  claim  his  "  luggage  ''  at  the  end  of  the  trip.  On 
the  Continent  of  Europe  the  passenger  receives  a  check 
for  his  baggage,  but  the  weight  of  baggage  which  he 
may  check  without  extra  payment  is  usually  limited  to 
56  pounds,  and  in  some  countries  nothing  but  hand  bag- 
gage is  exempted  from  charges.     In  the  United  States 


148  AMERICAN  RAILWAY  TRANSPORTATION 

the  railroads  permit  the  passenger  to  carry  as  much  hand 
luggage  as  he  wishes,  and  will  check  150  pounds  without 
charge.  This  extra  baggage  service  should  be  taken  into 
consideration  in  comparing  passenger  fares  in  the  United 
States  with  those  abroad. 

In  most  passenger-trains  there  are  more  seats  vacant 
than  occupied,  the  average  number  of  passengers  per 
train  in  the  United  States  being  only  42.  Over  many 
routes  an  increase  of  50  per  cent  in  the  number  of  per- 
sons carried  would  add  little  or  nothing  to  the  expenses 
of  operation.  Under  these  conditions,  profits  rise  very 
rapidly  with  even  a  moderate  increase  in  business,  and 
consequently  the  railroad  company  always  has  a  strong 
incentive  to  enlarge  the  patronage  of  its  road. 

Many  means  are  employed  to  accomplish  this.  The 
companies  advertise  in  the  daily,  weekly,  and  monthly 
journals,  and  place  descriptive  literature  in  conspicuous 
places.  Ticket  offices  are  located  in  the  most  central 
sections  of  the  large  cities;  agents  are  employed  to  solicit 
the  patronage,  and  excursions  for  many  purposes  and  to 
many  places — the  seashore,  the  mountains,  large  cities, 
to  political  and  religious  conventions,  to  inaugurations, 
to  the  Western  States,  to  gold-mines,  etc. — are  organ- 
ized by  the  railroads.  Some  official  in  the  passenger 
department  has  general  charge  of  the  excursion  business. 
Among  other  devices  to  increase  travel  are  the  "  person- 
ally conducted "  tours  which  many  companies  are  now 
successfully  organizing. 

The  "  resort "  traffic  and  suburban  traffic,  or  what  is 
frequently  called  the  commutation  business,  is  zealously 
stimulated  by  reduction  in  fares  and  by  offering  an 
attractive  service.  With  the  growth  of  wealth  in  the 
United  States  and  the  increase  in  the  number  of  those 
who  can  aiford  recreation  the  suramer  travel  between 
the  cities  and  the  seashore  and  mountain  resorts  is  rapidly 


THE  PASSENGER  SERVICE  149 

expanding.  Likewise  the  change  from  city  to  suburban 
residence  for  a  part  or  all  the  year  is  taking  place  with 
accelerating  rapidity  as  the  inconvenience,  discomfort, 
and  expense  of  getting  to  and  from  the  city  are  being 
lessened.  In  stimulating  suburban  residence  the  trolley 
has  been  quite  as  influential  as  the  steam-railroads,  and 
by  its  competition  has  in  some  instances  compelled  the 
railroad  companies  to  make  their  service  more  attractive 
by  reducing  fares  and  offering  better  accommodaticPns. 
The  trolleys  have  in  some  cases  taken  so  much  of  the 
short-distance  suburban  traffic  away  from  the  steam-lines 
as  to  cause  them  to  curtail  or  abandon  part  of  the  service 
previously  performed.  However,  the  result  of  the  trolley 
upon  the  growth  of  the  suburbs  has  often  been  to  cause 
such  an  increase  in  population  as  to  enlarge  ultimately 
the  traffic  of  the  railroads  as  well  as  the  trolley-lines. 

There  are  two  general  methods  of  inducing  people 
to  use  the  railroads  more  frequently:  one  is  the  reduction 
of  fares,  the  other  is  the  improvement  of  the  service. 
The  American  railroads,  generally  speaking,  have  been 
more  inclined  to  follow  the  latter  plan.  They  have  acted 
upon  the  theory  that  they  were  serving  a  people  having 
a  relatively  high  average  income  and  willing  to  pay  lib- 
erally for  comfort,  speed,  and  luxury  when  traveling; 
accordingly,  the  rivalry  of  competing  companies  has  led 
to  the  introduction  of  a  more  expensive  and  more  luxu- 
rious service  rather  than  a  cheaper  one.  As  was  stated 
above,  fares  have  declined  very  slowly  as  compared  with 
rates.  A  reduction  of  fares  to  stimulate  traffic  has  been 
made  in  many  cases,  but  greater  dependence  has  been 
placed  upon  speed  and  comfort  than  upon  cheap  fares  to 
attract  travel. 

It  is  possible  that  a  less  expensive  and  less  comfortable 
service  offered  at  rates  considerably  low^er  than  those 
prevailing  might  result  in  much  more  travel.     There  are 


150  AMERICAN  RAILWAY  TRANSPORTATION 

some  students  of  the  subject  who  think  that  there  would 
be  a  large  demand  for  a  cheaper  service  in  this  country, 
and  who  believe  that  the  experience  of  the  foreign  rail- 
roads, whose  inferior  but  inexpensive  service  has  caused 
the  poor  people  to  travel  extensively,  would  be  repeated 
in  this  country  if  the  American  railroads  were  to  offer 
the  masses  of  people,  whose  income  is  small  and  to  whom 
speed  and  luxury  are  not  of  prime  consequence,  an  oppor- 
tunity to  travel  for  fares  much  lower  than  those  now 
charged  for  first-class  tickets. 

In  considering  methods  for  increasing  the  use  of  the 
railroads  for  travel,  the  fact  should  be  kept  in  mind  that 
"  the  greatest  elasticity  of  demand  "  exists  among  those 
to  whom  expensive  travel  is  impossible.  The  desire  for 
travel  is  universal,  and  if  the  costs  of  traveling  can  be 
brought  within  the  means  of  all  with  the  possible  excep- 
tion of  the  very  poorest  classes  of  society,  the  number  of 
journeys  taken  can  be  greatly  increased.  The  lowering 
of  charges  both  in  this  country  and  abroad  indicates  that 
passenger  traffic  tends  to  increase  more  than  proportion- 
ately with  reductions  in  fares. 

It  does  not  necessarily  follow  that  the  revenues  de- 
rived from  the  larger  traffic  at  lower  fares  will  be  more 
profitable  to  the  railroads,  but  there  are  reasons  for 
believing  that  the  addition  to  the  present  passenger  busi- 
ness of  American  railroads  of  a  large  volume  of  traffic 
taken  at  low  fares  would  add  to  the  net  profits  of  the 
companies.  With  an  average  train-load  of  only  42,  it 
can  hardly  be  doubted  that  expenses  will  be  enhanced 
but  slightly  by  additional  business.  The  railroad  busi- 
ness is  one  of  "  increasing  returns  "  under  practically  all 
conditions — a  business  in  which  profits  rise  more  than 
proportionately  with  an  increase  in  the  business  done — 
and  the  passenger  service  as  at  present  conducted  is  one 
in  which  the  law  of  increasing  returns  would  operate  very 


THE  PASSENGER  SERVICE  151 

strongly.  There  is,  moreover,  the  practical  effect  of  low 
fares  in  other  countries  to  indicate  what  would  probably 
result  from  the  introduction  of  a  cheaper  service  at 
lower  fares  in  this  country. 

Dr.  Weyl  thinks  that  "  if  there  were  introduced  a 
cheap,  comfortable,  second-class  service  which  differed 
from  the  first-class  chiefly  (though  not  wholly)  in  name 
and  price,  there  would  be  many  new  passengers  who  at 
present  forego  traveling,  while  a  very  large  number 
would  travel  first-class  for  the  distinction  of  so  doing."  ^ 
This  is  equivalent  to  saying  that  American  passengers 
would  do  what  Europeans  do,  and,  indeed,  there  seems 
no  valid  reason  for  thinking  otherwise.  The  develop- 
ment of  a  second-class,  as  here  suggested,  would  in  reality 
mean  three  classes:  the  Pullman  service  and  the  first  and 
second  classes. 

It  is,  however,  not  probable  that  American  railroads 
will  soon  introduce  a  special  second-class  service  as  a 
regular  feature  of  the  passenger  trafiic.  There  are  other 
methods  by  which  travel  can  be  made  attractive,  and  as 
the  competition  among  the  several  companies  is  brought 
under  greater  control,  they  may  be  expected  to  try  vari- 
ous plans.  The  volume  of  travel  in  the  future  will  be 
enlarged  somewhat,  as  it  has  been  in  the  past,  by  increas- 
ing the  speed  of  trains.  The  results  that  will  follow  from 
accelerating  the  speed  of  the  trains  which  now  run  at 
50  miles  or  more  an  hour  will  not  be  important,  but 
the  effect  of  raising  the  average  speed  of  passenger-trains 
even  10  miles  an  hour  would  probably  be  considerable. 
The  improvements  being  made  in  road-bed,  cars,  locomo- 
tives, and  safety  appliances  are  certain  to  raise  the  aver- 
age rate  of  travel  much  above  what  prevails  to-day. 

Unquestionably    the    railroad    companies    have    been 

1  The  Passenger  TraflBc  of  Railways,  p.  21. 


152  AMERICAN  RAILWAY  TRANSPORTATION 

deterred  from  selling  low-rate  tickets  to  stimulate  special 
and  unusual  travel,  because  ticket-brokers,  or  ''  scalpers," 
are  able  to  secure  such  tickets  and  sell  them  at  "  cut 
rates "  to  persons  who  would  otherwise  purchase  the 
regular  full-rate  tickets.  The  brokers  in  many  cities  do 
a  flourishing  business  buying  and  selling  mileage  books, 
excursion  tickets  of  various  classes,  the  unused  portion 
of  through  and  return  tickets,  and  all  other  kinds  of 
tickets  which  the  broker  can  sell  for  less  than  the  full 
fare  and  yet  derive  a  profitable  commission. 

The  business  of  the  ticket-scalpers  is  objectionable 
not  only  because  it  prevents  the  railroad  company  from 
controlling  the  use  made  of  the  tickets  sold,  but  also  for 
the  reason  that  many  dishonest  practises  are  resorted  to 
in  selling  and  using  "  cut-rate ''  tickets.  Many  of  the 
special  tickets  issued  by  railroad  companies — mileage 
books,  for  instance — are  sold  to  be  used  only  by  the 
original  buyer,  who  must  sign  his  name  on  the  last  page 
of  the  ticket-book  and  on  the  portions  of  the  ticket  col- 
lected by  the  train  conductors  from  time  to  time.  If 
any  other  person  uses  the  ticket,  he  travels  under  a  false 
name  and  probably  has  to  forge  another's  signature. 

The  railroads  themselves  have  not  been  without  fault 
in  the  ticket-scalping  business,  because  in  times  past  they 
have  frequently  connived  with  the  brokers  by  lettmg 
them  have  blocks  of  tickets  to  be  sold  at  cut  rates.  The 
purpose  of  the  companies  doing  this  was  to  secure  traffic 
that  would  otherwise  have  gone  to  rival  lines,  and  the 
practise  was  one  of  the  results  of  unregulated  competi- 
tion. Xot  all  companies  adopted  such  methods  of  attract- 
ing business,  and  at  the  present  time  there  probably  are 
no  roads  in  league  with  the  brokers,  although  it  is  prob- 
able that  some  of  the  tickets  now  sold  by  the  brokers  are 
bought  directly  from  the  companies. 

The   railway  companies  by  cooperative   action  have 


THE  PASSENGER  SERVICE  153 

restricted  the  ticket-brokerage  business  within  much  nar- 
rower limits  than  it  formerly  had;  but  the  highly  pros- 
perous times  since  1898  have  made  cooperation  and  the 
regulation  of  competition  comparatively  easy  for  the  rail- 
roads; when  business  conditions  become  depressed  again, 
and  the  struggle  to  secure  traffic  becomes  more  intense, 
the  companies  may  not  be  able  to  prevent  a  resort  to 
some  of  the  objectionable  practises  of  the  past.  Laws 
by  the  United  States  and  by  all  the  States  limiting  the 
sale  of  tickets  to  the  railroad  companies  and  their  author- 
ized agents  are  desired  by  the  railroad  officials,  and  such 
legislation  has  been  enacted  by  ten  States;  but  the  law 
has  been  declared  unconstitutional  in  two  of  these  States 
— 'New  York  and  Texas.  The  United  States  Supreme 
Court  has  not  passed  upon  the  validity  of  such  legislation; 
but  it  is  probable  that  an  effective  law  could  be  drawn 
in  terms  that  would  be  constitutional. 

All  laws  prohibiting  the  sale  of  tickets  by  unauthor- 
ized brokers  should  contain  a  clause  requiring  railroad 
companies  to  redeem  the  unused  portions  of  tickets. 
Pennsylvania  passed  such  an  act  in  18G3,  and  there  are 
six  other  States  having  a  similar  statute.  The  enactment 
and  enforcement  of  such  a  law  would  greatly  limit  the 
opportunities  of  the  ticket-brokers,  but  would  not  entirely 
destroy  their  business. 

The  regulation  of  the  issue  of  free  passes  is  highly 
desirable  from  the  standpoint  alike  of  the  public  and  the 
railroads.  The  passes  are  a  bad  thing  for  the  railroad 
company,  because  they  cut  down  its  earnings;  they  are 
unjust  and  immoral  from  the  public  point  of  view — unjust 
because  they  improperly  discriminate  between  individ- 
uals, immoral  because  they  are  issued  to  legislators, 
judges,  and  other  public  officials  charged  with  the  enact- 
ment and  enforcement  of  laws  controlling  the  relations 
of  the  railroads  and  the  public. 


154  AMERICAN  RAILWAY  TRANSPORTATION 

Twenty  years  since,  passes  were  issued  in  great  num- 
bers and  to  many  classes  of  persons,  to  practically  any 
one  who  might  be  of  service  to  the  railroad  company; 
but  of  late  the  railroads  have  been  making  a  united 
effort  to  restrict  the  grant  of  free  transportation.  In 
the  past  it  has  been  customary  for  each  company  to  pass 
any  railroad  employee,  and  frequently  his  family,  over 
its  lines — those  men  connected  with  other  companies  as 
well  as  their  own  force — but  at  the  present  time  the  priv- 
ilege is  granted  only  to  the  company's  own  men.  The 
issue  of  passes  to  public  officials  and  favored  patrons  of 
the  road  has  been  considerably  restricted  by  placing  the 
power  of  granting  passes  solely  in  the  hands  of  one  or 
two  higher  officials  of  the  company.  There  is,  more- 
over, evidence  of  a  growing  moral  sense  in  the  public 
mind  against  the  pass  system.  Some  States  (less  than  one- 
fourth  of  the  total)  have  passed  laws  prohibiting  their 
officials  from  accepting  free  transportation,  and  many 
men  in  public  office  do  not  need  laws  to  teach  them  the 
immorality  of  accepting  favors  from  corporations;  but 
the  public  conscience  does  not  yet  condemn  the  pass  sys- 
tem strongly  enough  to  put  an  end  to  it.  The  restric- 
tion of  passes  to  the  employees  of  the  company  making 
the  grant  is  certain  to  become  the  general  practise  in 
time,  because  the  railways,  as  well  as  the  public,  will 
benefit  by  the  adoption  of  such  a  policy. 

The  accomplishment  of  such  reforms  as  the  stopping 
of  ticket-scalping  and  tlie  abolition  of  the  issue  of  objec- 
tionable passes  is  being  facilitated  by  the  consolidation 
of  railroads  and  by  their  growing  ability  to  cooperate. 
Under  former  conditions  of  unrestrained  rivalry  between 
a  multitude  of  struggling  companies,  some  strong  and 
well-established,  others  struggling,  often  by  questionable 
methods,  for  a  higher  rank  among  their  competitors,  it 
was    practically    impossible    for    the    railways    to    work 


THE  PASSENGER  SERVICE  155 

together  in  any  common  cause.  That  state  of  affairs  is 
largely  past,  and  fortunately  so.  It  is  now  possible  for 
the  railroad  corporations  to  introduce  such  changes  in 
business  methods  as  will  be  for  their  common  good; 
whether  the  methods  thus  adopted  shall  be  in  harmony 
with  the  public  good  will  depend  upon  the  ethical  stand- 
ards and  intelligence  of  the  community  in  regard  to  rail- 
road affairs. 

In  all  probability,  the  future  development  of  the  pas- 
senger service  will  be  influenced  very  greatly  by  the  use 
of  electricity  instead  of  steam  for  motor  power.  The 
groAvth  of  the  electric  railway  has  been  most  rapid.  In 
1887  there  were  13  short  lines,  using  altogether  about 
100  cars;  fifteen  years  later  there  were  2,086  miles  in 
Massachusetts  alone,  that  State  having  as  many  miles  of 
street-railways  as  of  trunk-line  railroads.  In  the  begin- 
ning these  electric  lines  were  laid  only  in  city  streets, 
but  they  soon  became  suburban  and  interurban  roads. 
They  are  now  sharing  with  the  steam-railroad  not  a  little 
of  the  short-distance  traffic  it  formerly  monopolized;  and 
when  one  considers  that  the  development  of  the  electric 
railway  is  as  yet  in  its  infancy,  the  prospect  is  that  ^^  in 
the  not  very  remote  future  a  subsidiary  railroad  system  " 
with  electricity  for  its  motor  will  be  in  operation. 

The  electric  railway  has  certain  technical  advantages 
over  the  steam-railroad,  especially  for  the  passenger  serv- 
ice. The  power  is  supplied  by  central  plants  and  can  be 
used  in  small  units  to  run  a  single  car  or  in  large  units 
to  propel  a  train;  moreover,  the  power  taken  from  the 
current  can  be  applied  to  as  many  axles  of  the  car  or 
train  as  may  be  desired.  The  steam-engine,  in  order  to 
avoid  a  waste  of  power,  must  haul  several  coaches,  and 
the  result  is  a  very  incomplete  use  of  the  capacity  of 
the  vehicle ;  but  the  electric  cars  can  be  run  singly,  at 
short  intervals,  and  the  number  of  cars  can  be  closely 


156  AMERICAN  RAILWAY  TRANSPORTATION 

adjusted  to  the  requirements  of  the  traffic.  The  electric 
power  is  clean,  safe,  and  quiet,  and  is  unquestionably 
economical  for  local  service  in  the  light  freight,  express, 
and  passenger  service.  In  the  suburban  and  to  a  large 
extent  in  the  interurban  traffic,  the  electric  cars  are  either 
run  over  the  lines  of  the  connecting  street-railways  or 
have  such  close  connections  with  them  as  to  enable  pas- 
sengers to  travel  directly  without  delay  between  their 
residences  and  places  of  business. 

Electric  roads  are  cheaper  to  build  and  operate,  and 
their  fares  are  less.  Right  of  way  has  usually  cost  but 
little,  although  that  will  change  if  the  electric  roads 
should  ever  develop  into  long  trunk  lines  having  an  ex- 
clusive roadway  as  the  steam-railroads  now  have;  the 
equipment  is  relatively  inexpensive,  and  terminal  and 
other  structures  require  small  outlay.  The  track,  how- 
ever, is  made  as  heavy  and  strong  as  that  used  by  the 
steam-lines.  The  electric  lines  handle  local  traffic  at 
much  lower  fares  than  the  steam-roads  do;  and  the  rate 
of  profits  of  capital  in  the  electric-railway  business  has 
been  much  in  excess  of  that  derived  by  the  steam-railroad 
companies. 

What  will  be  the  future  of  the  competition  of  elec- 
tric with  steam  railways  ?  Dr.  Weyl  says,  "  the  present 
street-railways  may  be  indefinitely  extended  along  the 
public  highways;  new  electrically  operated  railways  may 
be  chartered  under  general  enabling  acts,  or  the  present 
steam-railroads  may  use  electricity  either  alone  or  in 
conjunction  with  steam-power.  But  however  the  devel- 
opment may  shape  itself,  it  seems  probable  that  it  will 
be  in  the  direction  of  the  growth  of  a  vast  electric- 
ally conducted  passenger  traffic  and  a  radical  reduction 
in  passenger  fares,  both  on  electric  and  steam  railroads.'' 
Electricity  may  be  expected  to  take  the  place  of  steam 
as  the  motor  power  for  short-distance  traffic,  as  indeed 


THE  PASSENGER  bERVICE  15Y 

it  has  begun  to  do  in  the  steam-roads  entering  E'ew 
York  city  and  in  some  other  places.  Whether  elec- 
tricity will  supplant  steam  in  long-distance  traffic  will 
depend  to  some  extent  on  the  future  development  of  the 
storage-battery,  which  at  the  present  time  is  too  heavy 
and  too  expensive  for  practical  use  when  anything  but 
light  work  is  to  be  done.  The  movement  of  trains  elec- 
trically between  distant  termini  by  means  of  power  gen- 
erated in  central  plants  and  transmitted  along  the  line 
will  hardly  be  practicable  in  very  many  cases;  the  trains 
used  in  this  traffic  must  take  their  power  with  them. 

It  would  be  indeed  rash  to  predict  what  the  future 
development  of  the  electric  motor  will  be.  The  accom- 
plishments of  electrical  engineers,  with  their  present  in- 
complete knowledge  of  the  force  with  which  they  are  deal- 
ing, lead  the  world  to  expect  yet  greater  achievements. 
The  possibilities  of  electricity  are  doubtless  greater  than 
those  of  steam,  and  the  ultimate  use  of  the  electric  motor 
in  all  branches  of  the  transportation  service  seems  a 
rational  expectation. 

EEFERENCES    FOR    FURTHER    READING 

Weyl,  W.  E.  The  Passenger  Traffic  of  Railways.  [A  volume  pub- 
lished  by  the  University  of  Pennsylvania,  Philadelphia,  1901. 
The  book  contains  much  historical  and  statistical  information.] 

The  American  Railway.  Paper  by  Horace  Porter  on  Railway  Passen- 
ger Travel,  pp.  328-266. 

Prout,  H.  G.  Railroad  Travel  in  England  and  America.  Scribner's 
Magazine,  October  and  November,  1894. 

Report  of  the  Industrial  Commission,  vol.  iv,  pp.  758,  759. 


CHAPTEE   XI 

THE    EXPRESS    SERVICE    OF    THE    RAILWAYS 

Tnfi  express  business  is  here  studied  as  a  part  of  tlie 
transportation  service  performed  by  the  railroads.  'Not 
all  domestic  express  matter  is  transmitted  by  rail,  but 
the  railroads  have  now  spread  so  generally  and  so  thickly 
over  most  sections  of  our  country  that  the  saddle-horse, 
the  stage,  and  the  steamboat  have  come  to  be  little  used  bv 
the  express  companies.  In  the  service  between  the  United 
States  and  all  foreign  countries,  except  Canada  and  Mex- 
ico, the  steamship  is  necessarily  the  carrier  employed. 
There  are  but  few  of  the  important  phases  of  the  busi- 
ness performed  by  the  express  companies  of  the  United 
States  not  manifest  when  the  subject  is  viewed  from  the 
standpoint  taken  in  this  study. 

In  general,  express  traffic  consists  of  the  commodi- 
ties, other  than  mail-matter  and  personal  baggage,  trans- 
ported on  passenger-trains.  This  statement  does  not 
cover  quite  all  the  business,  because  some  express  goods 
are  sent  by  fast  trains  carrying  no  passengers,  but  that 
is  exceptional  at  the  present  time.  Among  the  articles 
most  frequently  carried  by  express  are  parcels  of  com- 
modities of  light  weight  and  high  vajue,  valuable  papers 
and  documents,  books,  magazines,  and  other  printed  mat- 
ter (usually  the  printed  matter  sent  consists  of  packages 
weighing  over  four  pounds),  paper  money,  coins  and  pre- 
cious stones,  and  perishable  products  requiring  more  rapid 
transportation  and  prompter  delivery  than  the  railroad 
158 


THE  EXPRESS  SERVICE  OF  THE  RAILWAYS       159 

companies  can  offer  in  tlieir  freight  service.  In  addition 
to  the  transportation  services  performed  by  the  express 
companies,  they  sell  to  travelers  "  express  money-orders," 
payable  at  any  of  their  foreign  offices,  and  they  sometimes 
collect  accounts  and  execute  papers. 

We  are  here  concerned  with  the  carrying  business  of 
the  express  companies.  In  forwarding  parcels  some  of 
their  traffic  is  like  that  sent  by  mail.  In  the  United 
States  the  post-office  accepts  for  transportation  within  the 
country  only  packages  weighing  4  pounds  or  less,  and 
leaves  the  carriage  of  the  heavier  ones  to  the  express 
companies.  In  this  the  practise  of  the  United  States 
differs  from  that  of  several  foreign  countries  in  which 
packages  weighing  11  pounds  are  accepted  for  trans- 
mission through  the  mails.  In  countries  having  a  "  par- 
cels post ''  for  handling  packages  of  this  size,  the  ex- 
press business  is  handled  either  as  mail-matter  or  as  fast 
freight. 

Strictly  speaking,  the  express  business  is  a  part  of 
the  freight  service,  both  consisting  of  the  movement  of 
commodities  as  contrasted  with  the  carriage  of  persons, 
which  is  the  passenger  service,  nor  is  there  any  sharp  line 
of  distinction  between  the  traffic  handled  by  the  express 
companies  and  by  the  railroads  as  fast  freight.  The 
express  company  will  accept  practically  any  commodity, 
and  the  shipper,  whatever  may  be  the  nature  of  the  goods 
he-  is  forwarding,  has  the  option  of  sending  his  articles 
as  freight  on  trains  running  about  15  miles  an  hour — 
the  consignee  to  call  at  the  depot  for  the  goods — or  the 
shipper,  by  paying  about  four  times  the  ordinary  freight 
rate,  may  have  an  express  company  call  at  his  house  or 
place  of  business  for  the  packages  to  be  shipped,  despatch 
them  on  a  train  making  30  to  50  miles  an  hour,  and  de- 
liver them  at  the  street  address  of  the  person  to  whom  the 
articles  are  sent. 


160  AMERICAN  RAILWAY  TRANSPORTATION 

In  actual  practise,  the  competition  between  the  ex- 
press and  freight  services  is  neither  so  general  nor  so 
keen  as  the  statement  just  made  might  indicate,  partly 
because  the  relations  of  the  express  and  railroad  compa- 
nies are  regulated  by  contract,  and  partly  because  the 
railroad  company  may  frequently  receive  more  for  car- 
rying goods  for  the  express  company  than  would  be 
obtained  as  freight  charges  paid  by  the  shipper  of  the 
commodities — i.  e.,  the  railroad  company's  share  of  the 
express  charges  may  be  greater  than  the  total  charges 
would  be  if  the  goods  were  carried  as  freight.  In  the 
past,  railroad  companies  have  sometimes  favored  the  ship- 
ment of  such  bulky  commodities  as  oysters,  milk,  and 
fresh  fruit  by  express,  but  with  the  recent  development 
of  the  fast  freight  service  the  tendency  is  to  restrict  the 
express  traffic  to  parcels. 

In  most  countries  the  express  traffic  not  carried 
through  the  mails  is  handled  by  the  railroad  companies, 
but  in  the  United  States  most  of  the  railroad  corporations 
turn  over  to  a  distinct  company  the  business  of  collecting, 
despatching,  and  delivering  express  packages.  The  rail- 
road companies  provide  and  haul  the  cars.  A  few  railroad 
companies  have  developed  a  special  organization  of  their 
own  for  the  performance  of  the  express  service.  The 
Baltimore  and  Ohio  for  many  years  had  its  own  express 
company,  but  it  has  sold  out  the  business  to  the  United 
States  Express  Company.  At  the  present  time  the  ex- 
press traffic  over  the  Northern  Pacific  lines  is  managed 
by  the  Northern  Pacific  Express,  that  over  the  Great 
Northern  system  by  the  Great  Northern  Express,  and 
that  over  the  Denver  and  Pio  Grande  roads  by  a  company 
having  the  same  name.  These  organizations  for  the  han- 
dling of  express  matter  over  the  lines  composing  a  large 
railroad  system  are  similar  to  the  cooperative  fast  freight 
lines. 


THE  EXPRESS  SERVICE  OF  THE  RAILWAYS        161 

The  express  companies  independent  of  the  railroads 
have  both  the  partnership  and  the  corporate  forms  of 
organization,  the  limited  partnership  being  usual.  The 
business  having  been  developed  from  small  beginnings  by 
a  limited  number  of  enterprising  individuals,  the  men 
who  built  up  the  traffic  preferred  to  control  the  organi- 
zation, and  they  found  the  partnership  the  best  means 
for  doing  this.  There  have  been  many  consolidations 
whereby  the  express  business  has  been  concentrated  prin- 
cipally in  the  control  of  a  half-dozen  large  companies. 

The  six  large  express  companies  in  the  United-  States 
are  the  Adams,  the  American,  the  Pacific,  the  Southern, 
the  United  States,  and  the  Wells,  Fargo  &  Co.  In  addi- 
tion to  these  companies  and  the  organizations  connected 
with  single  systems  of  railroads  there  are  the  ^N^ational, 
a  company  of  medium  proportions,  and  the  New  York 
and  Boston  Despatch,  the  West  Jersey,  and  the  Western, 
each  doing  a  small  business.  There  are  several  Canadian 
and  Mexican  express  companies  which  do  more  or  less 
business  over  American  railroads. 

During  the  first  decade  of  the  history  of  the  rail- 
roads of  the  United  States  there  was  no  special  organiza- 
tion for  handling  express  matter.  Those  wishing  to  send 
valuable  packages  quickly  to  their  destination  usually 
entrusted  them  to  the  conductors  or  baggage  agents,  who 
left  them  with  the  station  agents  to  deliver  to  the  con- 
signee when  he  called  for  them.  About  1839,  William 
Harnden,  perceiving  the  need  for  a  systematic  and  respon- 
sible service,  began  receiving  parcels  for  transmission  by 
responsible  agents  between  'New  York  and  Boston.  He 
arranged  with  the  railroad  and  steamship  lines  to  carry 
his  messengers  and  their  packages,  and  soon  organized 
a  service  between  New  York  and  Philadelphia,  and  be- 
tween the  United  States  and  Europe.  By  1850  his  busi- 
ness had  been  extended  into  the  Southern  United  States. 
13 


162  AMERICAN  RAILWAY   TRANSPORTATION 

Harnden's  business  seems  to  have  been  profitable  from 
the  start,  for  in  1840  Alvin  Adams  began  to  compete 
for  the  New  York  and  New  England  business.  Harnden 
found  the  European  business  so  attractive  that  he  empha- 
sized that  more  than  the  domestic  service,  and  thus  gave 
Adams  a  favorable  opportunity  to  enlarge  his  field  of 
operations.  In  1854  Adams  &  Co.,  Harnden  &  Co.,  and 
two  other  smaller  firms,  Thompson  &  Co.  and  Kinsley  & 
Co.,  consolidated  and  became  the  Adams  Express  Com- 
pany. 

The  firms  that  united  to  form  the  Adams  Express 
Company  antedated  any  others  in  the  service,  but  the 
American  Express  Company  was  established  in  1850  by 
the  union  of  the  Livingston  Company,  founded  in  1841, 
and  the  Wells  Company,  organized  in  1845.  The  Amer- 
ican Express  Company  devoted  itself  especially  to  the 
business  between  New  York  and  the  West,  and  now 
operates  over  more  lines  of  railroad  than  any  other 
company  does.  Wells,  Fargo  &  Co.  started  in  1852, 
and  took  hold  of  the  California  business  seventeen  years 
before  the  first  railroad  to  the  Pacific  was  completed, 
and  at  a  time  when  the  stage-coach  and  ponies  were 
used  to  transport  packages,  and  when  the  express-agents 
had  many  a  thrilling  episode  with  Indians  and  highway- 
men. Bandits  seem  to  derive  peculiar  satisfaction  from 
"  holding  up  "  the  carriers  of  express  and  mails,  the  train 
robbers  continuing  to  follow  their  nefarious  business  even 
at  the  present  time.  The  United  States  Express  Com- 
pany Avas  organized  in  1854  and  took  the  Central  West 
for  its  special  field.  The  Southern  Express  Company 
was  incorporated  in  1886.  Its  service  is  mainly  in  the 
section  south  of  the  Potomac  and  east  of  the  Mississippi, 
where  it  has  most  of  the  traffic.  The  Pacific  Express  Com- 
pany began  operations  in  1879,  choosing  the  southwestern 
section  of  the  United  States  for  its  special  field.     The 


THE  EXPRESS  SERVICE  OF  THE  RAILWAYS        163 

National  Express  Company,  although  one  of  the  smaller 
companies,  was  founded  in  1853,  and  two  years  later 
consolidated  with  two  companies  doing  business  north- 
ward from  New  York.  The  mileage  over  which  the 
I^ational  operates  is  increasing,  its  principal  contracts 
being  with  railroads  controlled  by  the  Yanderbilt  in- 
terests. 

The  express  service  in  the  United  States  is  centralized 
in  the  control  of  a  few  large  companies  which  have  in  a 
general  way  divided  the  field  among  themselves.  No 
company  has  exclusive  possession  of  the  territory  over 
which  its  service  extends,  but  there  is  and  has  been  a 
harmony  of  action  among  the  companies,  and  an  absence 
of  the  violent  competition  that  formerly  characterized 
interrailway  relations. 

In  its  contract  with  the  railroad  corporation  the  ex- 
press company  secures  a  monopoly  of  the  express  busi- 
ness over  the  railroad  lines  included  within  the  agreement. 
As  indicated  by  the  following  section  of  an  actual  con- 
tract, it  is  customary  for  "  the  express  companies  to 
agree  to  handle,  load,  and  unload  all  express  matter,  and 
to  assume  all  risks  of  loss  and  damage  thereto  except  for 
such  loss  or  damage  as  may  result  from  the  gross  care- 
lessness or  gross  negligence  of  the  railroad  company,  its 
agents  or  servants,  and  to  pay  to  the  railroad  company 
for  the  rights,  privileges,  and  services  hereby  provided, 
40  per  cent  of  the  gross  receipts  arising  in  any  way  from 
any  property  or  matter  carried  upon  or  over  the  lines 
owned,  leased,  or  operated  by  the  railroad  company,  with- 
out deduction  of  any  expenses  of  any  kind  whatever." 

Sometimes  the  railroad  corporation  obtains  more  than 
40  per  cent  of  the  total  receipts  of  the  express  com- 
pany, as  high  as  60  per  cent  being  paid  in  some  instances, 
the  percentage  depending  upon  the  character  and  amount 
of  the  express  traffic.     The  receipts  obtained  by  the  ex- 


164  AMERICAN  RAILWAY  TRANSPORTATION 

press  coinj)any  for  the  transmission  of  money,  bullion, 
and  jewelry  are  frequently  exempted  from  the  payments 
to  the  railroads.  It  is  also  usual  to  stipulate  in  the  agree- 
ment that  the  express  company  may  charge  such  rates 
as  it  may  determine  upon,  but  that  the  minimum  express 
rates  must  be  a  stipulated  per  cent  (varying  from  50  to 
150  per  cent)  above  the  rates  which  the  goods  would  pay 
were  they  shipped  by  freight. 

The  express  rates  average  from  three  to  four  times 
what  the  freight  charges  would  be.  In  fixing  their 
charges,  the  express  companies  take  into  consideration 
the  value  and  character  of  the  goods,  the  quantity 
shipped,  the  distance  they  are  to  go,  the  speed  at  which 
they  are  to  be  carried,  and  the  kind  of  service  rendered 
by  the  company  in  the  collection  and  distribution  of  the 
articles.  As  in  the  case  of  freight,  the  most  usual  basis 
of  charge  is  weight  and  distance — with  a  minimum  charge 
of  about  25  cents  for  a  package.  If  the  article  sent  is 
valued  at  over  $50,  an  additional  charge  is  made  as  an 
insurance  to  cover  the  extra  risk  assumed  in  performing 
the  service.  The  charges  for  transmitting  money  are 
made  upon  the  amount  declared  to  be  in  the  package. 
The  customary  unit  upon  which  the  charge  is  made  is 
$1,000,  the  rate  varying  somewhat,  though  but  slightly, 
with  the  distance.  The  charge  for  carrying  gold  is  25 
per  cent,  and  for  silver  50  per  cent  greater  than  for 
paper  currency,  because  of  the  greater  weight  and  bulk 
of  the  coin. 

The  organization  by  which  the  express  company  car- 
ries on  its  service  is  not  a  complicated  one.  Subject  to 
the  members  of  the  firm  or  the  general  ofiicers  of  the 
corporation  is  a  general  superintendent  exercising  gen- 
eral administrative  authority  over  the  entire  service. 
Under  him  are  division  superintendents  corresponding  to 
the  trafiic  managers   in   the   railroad  business.      Station 


THE  EXPRESS  SERVICE  OF  THE  RAILWAYS        165 

agents  receive  and  deliver  goods,  and  messengers  have 
charge  of  the  articles  while  in  transit.  A  limited  number 
of  route  agents  are  employed  to  examine  the  stations  or 
agencies  and  to  report  to  the  superintendent. 

The  person  consigning  goods  to  an  express  company 
receives  a  receipt  containing  a  description  of  the  goods 
and  a  statement  of  their  declared  value.  The  express 
charges  may  be  paid  on  receipt  of  the  goods  by  the  com- 
pany (P.  O.  K.)  or  on  delivery  of  the  articles  to  the 
consignee  (collect).  The  goods  shipped  are  accompanied 
by  a  way-bill  similar  to  a  freight  way-bill,  stating 
the  weight  and  value  of  each  package,  the  consignor  and 
consignee,  destination,  and  charges,  prepaid  or  unpaid. 
The  messengers  account  to  the  station-agents,  and  the 
agents  to  the  auditor's  office. 

There  are  no  available  statistics  of  the  volume  of 
express  business  done  annually,  because,  unlike  the  rail- 
road corporations,  the  express  companies  are  not  required 
to  make  yearly  reports  to  the  United  States  Government. 
The  only  figures  are  those  compiled  by  the  United  States 
decennial  censuses,  and  the  statistics  to  be  gatHered  in 
connection  with  the  census  of  1900  have  not  yet  been 
published.  According  to  the  census  of  1890,  the  total 
mileage  of  railways,  waterways,  and  highways  covered 
by  the  service  of  the  express  companies  was  174,534 
miles,  of  which  total  92.6  per  cent  was  under  the  control 
of  the  six  large  companies — the  American,  Adams,  United 
States,  Pacific,  Southern,  and  Wells,  Fargo  &  Co.  Dur- 
ing the  year  ending  June  30,  1890,  there  were  trans- 
mitted 98,118,430  packages,  weighing  1,646,273  tons. 
The  way-bills  of  money  shipments  numbered  17,258,- 
682,  and  the  sales  of  express  money-orders  numbered 
4,598,567. 

Some  persons  think  it  would  be  to  the  interest  of  the 
public  were  the  United  States  Government  to  enlarge  its 


16()  AMERICAN  RAILWAY  TRANSPORTATION 

mail  service  so  as  to  cover  most  of  the  traffic  now  han- 
dled by  the  express  companies.  This  policy  has  been 
adopted  in  the  United  Kingdom  and  in  other  countries 
by  means  of  the  "  parcels  post/'  which  is  said  to  be  a 
success.  The  main  argument  advanced  in  favor  of  en- 
larging the  package  business  in  the  United  States  postal 
service  is  that  the  United  States  could  conduct  the  serv- 
ice more  economically  than  the  express  companies  can, 
and  hence  at  lower  rates  than  now  prevail.  It  is  claimed 
that  inasmuch  as  the  Government  has  its  post-offices  in 
every  nook  and  corner  of  the  country,  and  its  "  branch 
offices ''  or  "  stations ''  in  all  sections  of  the  large  cities, 
and  has  an  elaborate  collecting  and  distributing  service, 
which  is  now  being  rapidly  extended  even  into  the  rural 
districts,  the  Government  would  need  only  to  enlarge  its 
present  service,  which  it  could  do  with  a  relatively  small 
increase  of  expenses,  in  order  to  include  all  the  traffic- 
in  small  packages  now  handled  by  the  express  companies. 
The  express  companies,  with  their  many  offices  and  cars, 
their  army  of  employees,  and  their  elaborate  arrange- 
ments for  collecting,  transmitting,  and  delivering  pack- 
ages, are  to  a  considerable  extent  a  duplication  of  the 
mechanism  by  which  the  postal  service  is  performed,  and 
hence  are  said  to  be  a  social  burden,  because  more  cap- 
ital and  labor  are  employed  than  would  be  required  if 
all  the  work  were  done  by  the  Government.  It  is  also 
argued  that  the  Government  could  do  the  package-ex- 
press business  better  than  private  companies  can,  because 
the  Government  has  many  more  offices,  branch  offices, 
and  stations  than  there  are  express  offices.  The  post- 
offices  serve  many  more  people  than  the  express  compa- 
nies do  or  ever  can. 

Those  who  oppose  the  extension  of  the  package  serv- 
ice of  the  post-office  doubt  the  wisdom  of  the  Govern- 
ment's undertaking  any  work  that  can  be  performed  satis- 


THE  EXPRESS  SERVICE  OF  THE  RAILWAYS        16T 

factorily  by  individuals.  They  feel  that  the  functions 
and  burdens  which  the  state  must  necessarily  take  upon 
itself  are  certain,  to  multiply  as  rapidly  as  the  ability  and 
honesty  of  the  Government  increase.  Many  people  think 
that  other  changes  in  our  postal  service,  especially  the 
extension  of  the  rural  free  delivery,  should  have  prece- 
dence over  the  establishment  of  a  parcels  post  such  as 
foreign  countries  have. 

Whether  or  not  the  time  has  come  for  increasing  the 
competition  of  the  mail  with  the  express  business,  there 
is  little  doubt  that  the  post-office  could  handle  packages 
up  to  10  or  15  pounds  in  weight  without  loss  at  rates 
much  lower  than  those  now  charged  by  the  express  com- 
panies. If  the  Government's  competition  were  extended, 
the  rates  charged  by  the  private  companies  would  prob- 
ably be  lowered.  Moreover,  it  is  probable  that  the  rates 
now  charged  are  higher  than  are  necessary  to  secure  fair 
profits  on  the  capital  invested.  The  express  business, 
while  not  a  complete  monopoly,  is  one  in  which  competi- 
tion is  confined  to  narrow  limits.  Most  express  traffic 
is  free  from  competition  either  by  the  post-office  or  by 
the  freight  service  of  the  railroads,  and  the  rivalry  among 
the  companies  themselves  is  nearly  eliminated  by  the 
consolidation  of  the  business  in  the  hands  of  a  few  large 
companies,  each  having  a  more  or  less  definite  section  of 
the  country,  and  by  the  agreements  which  the  companies 
can  readily  make  with  each  other  regarding  rates. 

A  transfer  of  the  express  traffic  partially  or  wholly 
from  the  private  companies  to  the  Government  would  not 
greatly  affect  the  service  of  hauling  the  cars  now  per^ 
formed  by  the  railroads  in  connection  with  the  express 
business.  By  combining  the  mail  and  express  traffic,  a 
som.ewhat  smaller  number  of  cars  would  need  to  be  run 
and  the  earnings  of  the  railroads  might  be  slightly 
reduced.     But  whether  the  Government  should  decide 


168  AMERICAN  RAILWAY  TRANSPORTATION 

to  extend  its  parcels  service  or  not,  would  it  not  he  to 
the  advantage  of  the  railroad  companies,  as  they  are 
now  constituted,  to  extend  their  freight  service  so  as  to 
include  all  the  express  traffic  not  handled  through  the 
mails? 

The  express  business  was  organized  as  a  separate 
service  by  companies  distinct  from  the  railroad  corpora- 
tions, at  a  time  when  the  railway  systems  were  small  and 
when  their  facilities  for  handling  traffic  expeditiously 
either  over  short  or  long  distances  were  undeveloped; 
but  those  conditions  have  ceased  to  exist  now  that  the 
railroads  of  the  entire  country  have  been  grouped  into  a 
few  large  systems.  There  are  single  systems  of  roads 
comprising  as  many  miles  of  line  as  are  covered  by  the 
service  of  the  large  express  companies.  It  has  now  be- 
come entirely  a  matter  of  expediency  with  many  of  the 
railroad  companies  whether  they  shall  themselves  handle 
the  express  business  done  over  their  lines  or  whether 
they  shall  delegate  the  service  to  some  other  company. 
Some  of  the  large  railroad  systems  now  have  their  own 
express  service,  and  the  assumption  of  the  service  by  other 
systems  will  be  a  logical  consequence  of  the  recent  and 
the  prospective  consolidation  of  railway  management. 

The  express  service  as  now  performed  by  companies 
separate  from  the  railroad  organization  has  the  merits 
of  safety,  speed,  and  concentration  of  responsibility. 
The  shipper  is  well  served  by  a  company  which  he  can 
readily  hold  responsible.  The  objections  urged  against 
the  present  organization  of  the  express  service  are  that 
rates  are  high,  that  two  companies  are  engaged  in  doing 
a  work  that  could  be  performed  by  one — that  the  express 
company  is  a  wheel  within  a  wheel — and  that  the  dele- 
gation of  the  express  traffic  to  special  companies  has 
caused  the  railroads  to  be  less  zealous  than  they  other- 
wise would  have  been  in  extending  their  fast  freight  serv- 


THE  EXPRESS  SERVICE  OF  THE  RAILWAYS        169 

ice,  and  in  developing  a  speedy  local  freight  service  which 
would  be  of  especial  advantage  in  certain  lines  of  pro- 
duction and  trade. 

EEFEEENCES    FOR    FURTHER   READIITG 

United  States  Census,  1880,  vol.  iv,  pp.  594-610,  855-856;  1890, 
Report  on  Transportation  Business,  part  ii,  pp.  491-498. 

Stimson,  a.  L.  History  of  the  Express  Companies,  and  the  Origin 
of  American  Railroads,  pp.  489-533;  second  edition,  1858. 

Report  of  Massachusetts  Railway  Commission,  1870,  pp.  69-75. 

Testimony  taken  by  the  Commission  to  Investigate  the  Postal  Service, 
1900.  Government  Printing- Office,  Washington,  D.  C.  Part  i, 
pp.  29-62,  statement  of  John  J.  Valentine,  president  of  Wells, 
Fargo  &  Co. ;  pp.  512-532,  statement  of  Henry  S.  Julier,  general 
manager  American  Express  Company.  Part  ii,  pp.  687-696, 
statement  of  Levi  C.  Wier,  president  Adams  Express  Company. 

Dabney,  W.  D.     The  Public  Regulation  of  Railways,  1889,  ch.  ix. 

The  Official  Guide  of  the  Railways  and  Steam  Navigation  Lines  of 
the  United  States.  This  contains  a  table  giving  the  name  of  the 
express  company  operating  over  each  railroad  system  in  the 
United  States. 


CHAPTER   XII 

THE    MAIL    SERVICE    OF    THE    RAILWAYS 

The  transportation  of  the  mails,  like  the  freight,  pas- 
senger, and  express  services,  is  a  distinct  and  separately 
organized  department  of  the  activities  of  the  railroads. 
The  details  of  the  organization  of  this  department  differ 
in  several  particulars  from  those  of  other  branches  of  the 
railroad  service,  because '  the  mail  traffic  has  several 
unique  characteristics. 

In  studying  the  railway  mail  service  we  are  con- 
sidering only  a  part  of  the  general  postal  service  of  the 
Government,  but  the  part  under  consideration  occupies 
a  central  and  indispensable  place  in  the  entire  service, 
and  a  clear  presentation  of  the  chief  facts  regarding  the 
railway  mail  service  reveals  something  concerning  most 
branches  of  the  postal  service.  For  a  detailed  study  of 
the  activities  of  the  post-office  the  references  at  the  close 
of  this  chapter  will  be  of  assistance. 

The  volume  of  the  mail  traffic  is  growing  rapidly, 
more  than  proportionately  with  the  increase  in  popula- 
tion. The  more  highly  organized  business  methods  be- 
come and  the  wider  the  territory  reaches  over  which 
men  extend  the  activities  of  their  business,  the  more 
largely  the  mails  are  used.  The  more  general  education 
becomes,  the  more  time  wage-earners  and  their  families 
have  for  letter-writing  and  for  reading,  and  the  more 
surplus  income  they  have  for  the  purchase  of  stamps  and 
literature,  the  more  largely  is  the  postal  service  employed, 
170 


THE  MAIL  SERVICE  OP  THE  RAILWAYS  171 

The  growth  of  the  mail  traffic  is  a  general  index  of  the 
progress  of  civilization,  and  as  the  great  bulk  of  mail- 
matter  is  transported  bj  the  railroads,  their  mail  business 
is  an  equally  instructive  index. 

Mail-matter  as  well  as  freight  is  classified,  but  differ- 
ent principles  govern  the  two  classifications.  Freight 
is  classified  with  reference  to  maximum  traffic  and  maxi- 
mum revenue,  whereas  the  aim  of  the  Government  is 
not  to  derive  a  surplus  revenue  from  the  postal  service, 
but  to  administer  the  post-office  in  such  a  way  as  to  make 
it  contribute  most  largely  to  the  convenience  of  business 
and  to  the  promotion  of  public  intelligence.  If  total 
receipts  equal  total  expenditures,  the  Government  is  sat- 
isfied; and  in  order  to  make  the  educational  value  of  the 
mails  as  great  as  possible,  most  printed  matter  is  carried 
at  a  loss,  some  not  being  charged  any  postage  whatever, 
the  deficits  in  that  part  of  the  service  being  made  good 
wholly  or  in  part  from  the  receipts  from  other  parts. 

The  four  classes  of  mail-m.atter  comprise:  First,  let- 
terSj  all  written  matter,  and  all  sealed  packages,  the  rate 
being  two  cents  an  ounce.  Second,  newspapers,  maga- 
zines, and  other  periodicals  issued  at  intervals  not  ex- 
ceeding three  months.  The  rate  on  this  class  of  mail 
is  a  cent  for  four  ounces,  but  when  mailed  by  the  pub- 
lisher the  rate  is  one  cent  a  pound.  Local  newspapers 
circulate  free  of  postage  within  the  county  of  publication, 
an  exception  being  made  of  the  circulation  in  cities  having 
a  free-delivery  service.  Third,  hoohs,  pamphlets,  and  all 
printed  matter  other  than  periodicals,  the  rate  being  a 
cent  for  two  ounces,  the  limit  of  weight  for  a  package 
being  four  pounds,  with  the  exception  of  a  single  volume 
exceeding  that  weight.  Fourth,  all  mailable  merchandise 
so  prepared  for  mailing  as  to  be  easily  taken  from  the 
wrapper  and  examined.  The  rate  is  a  cent  an  ounce, 
except  for  seeds,  roots,  cuttings,  bulbs,  plants,  and  scions, 


172  AMERICAN  RAILWAY  TRANSPORTATION 

which  pay  only  a  cent  for  two  ounces.  Much  mail  of  all 
classes  is  carried  free,  the  "  franking "  privilege  being 
granted  to  Congressmen  and  Government  officials  for  all 
official  business. 

According  to  the  report  of  the  Postmaster-General 
for  the  year  ending  June  30,  1901,  ^'  the  number  of 
pieces  of  mail-matter  of  all  classes  handled  by  the  postal 
service  during  the  fiscal  year  reached  the  total  of  7,424,- 
390,329.  As  near  as  can  be  estimated,  the  several  classes 
were  divided  into  the  following  proportions:  Letters, 
prepaid  and  official,  3,604,322,767;  postal  cards,  659,- 
614,800;  newspapers  and  periodicals,  or  second-class  mat- 
ter, 2,206,791,539;  third-  and  fourth-class  matter,  953,- 
661,223."  These  figures  are  only  approximately  correct, 
being  estimates  based  on  a  counting  and  weighing  for 
one  week  in  1890.  The  accuracy  of  the  test  ^  made  in 
1890  has  been  questioned  by  those  who  had  charge  of 
it,  but  the  figures  based  on  that  test  are  the  only  ones 
available. 

The  figures  regarding  the  weight  of  mail-matter  other 
than  second-class  mail  handled  by  the  post-office  are  but 
little  more  definite.  The  second-class  matter  mailed  in 
bulk  by  publishers  and  news-agents  in  1901  amounted  to 
429,444,573  pounds.  The  periodicals  delivered  free  of 
charge  within  the  county  of  publication  are  estimated 
to  have  weighed  31,775,264  pounds,  making  the  total  of 
second-class  matter  mailed  free  or  at  pound  rates  461,- 
219,837  pounds.  This  sum  is  estimated  to  be  67  per  cent 
of  the  total  mail-matter  included  in  all  classes.  Accord- 
ing to  this  estimate,  the  mails  handled  during  the  year 
ended  June  30,  1901,  weighed  about  688,000,000  pounds, 
or  344,000  tons.  It  is  to  be  understood  that  these  figures 
do  not  include  the  weight  of  the  sacks,  racks,  and  other 

1  See  Tunell,  Railway  Mail  Service,  pp.  77-81. 


THE  MAIL  SERVICE   OF  THE  RAILWAYS  173 

necessary  equipment  transported  with  the  mail.  The 
equipment  carried  in  the  mail-cars  exceeds  the  weight  of 
the  mail-matter.^ 

Unsuccessful  attempts  have  been  made  to  determine 
the  average  distance  which  each  pound  or  ton  of  matter  is 
carried,  and  estimates  of  328  miles,  442  miles,  and  813 
miles  have  been  made;  but  the  most  that  can  be  said  is 
that  none  of  these  estimates  is  satisfactory,  and  the  aver- 
age distance  mail-matter  travels — '^  the  average  haul  " — 
is  not  known.  This  is  unfortunate,  because  this  distance 
must  be  known  in  order  to  calculate  the  average  rate 
per  pound  and  ton  per  mile  paid  by  the  United  States  for 
carrying  the  mails,  l^ot  knowing  this  rate  per  pound  per 
mile  for  carrying  the  mails,  it  is  not  possible  to  compare 
satisfactorily  the  mail  with  the  express  and  passenger 
services  as  regards  rates. 

The  Government  employs  railroads,  steamships,  stage- 
coaches, and  messengers  to  carry  the  mails,  but  over  86 
per  cent  of  the  total  weight  of  mail  and  equipment,  it 
is  estimated,  is  transported  by  the  railways.  A  part  of 
the  mail  transported  by  the  railroads  is  carried  in  closed 
pouches  in  baggage-cars.  In  the  fiscal  year  1901  this 
service  was  performed  on  20,236  miles  of  road,  the  mile- 
age traveled  by  the  cars  containing  the  mail-pouches 
amounting  to  24,072,558.  A  much  larger  amount  of 
mail  was  carried  in  the  "  railway  post-offices,"  or  cars 
equipped  as  a  post-office.  These  cars  are  in  charge  of 
messengers  who  sort  the  mail  as  it  is  received  and  place 
in  separate  pouches  the  mail  for  each  city,  and  if  the  city 
is  a  large  one,  for  various  sections  of  the  city.  Sometimes 
the  railway  post-offices  occupy  an  entire  car  (some  trains 
being  composed  only  of  mail-cars),   and  sometimes  they 

^  For  another  estimate  of  the  weight  of  the  mails  see  the  report  of 
the  Postmaster-General  for  1900,  p.  25$;  also  Tunell,  Railway  Mail 
Service,  pp.  199-201. 


174  AMERICAN  RAILWAY  TRANSPORTATION 

occupy  a  part  of  a  car,  usually  the  baggage-car,  in  which 
an  apartment  is  fitted  up  as  a  post-ofiice.  In  1901  "  the 
miles  of  railroad  covered  by  full  railway  post-office  lines 
was  47,819;  by  apartment  railway  post-office  lines,  114,- 
999/'  The  miles  run  by  the  crews  in  charge  of  the 
former  amounted  to  89,419,281,  and  by  the  crews  in 
charge  of  the  apartment  post-office  lines  117,976,753. 
According  to  these  figures,  the  mails  were  carried  on  183,- 
055  miles  of  steam-railroads  in  cars  or  mail-trains  which 
carried  the  messengers  or  crews  in  charge  of  the  mails 
231,468,592  miles. 

The  figures  compiled  in  the  office  of  the  Second 
Assistant  Postmaster-General,  who  has  charge  of  the 
transportation  of  the  mails,  include  some  railroad  mileage 
not  comprised  in  the  figures  cited,  and  make  the  length 
of  the  railroad  routes  over  which  the  mails  were  carried 
in  1901  183,358  miles.  If  each  car  carrying  the  mails 
be  taken  as  a  unit,  the  "  annual  travel "  or  car  mileage 
aggregated  302,613,325. 

The  Second  Assistant  Postmaster-General  estimates 
that  during  the  fiscal  year  1901  the  railway  postal  clerks 
handled  7,611,621,920  pieces  of  first-class  mail  and 
6,569,602,500  pieces  of  all  other  classes,  making  a  total 
of  14,181,224,420  pieces.  In  addition  to  this  they  han- 
dled 21,284,833  packages  and  sacks  of  registered  mail. 
These  sums  make  a  total  nearly  twice  the  entire  number 
of  pieces  of  mail  transported  by  the  railroads  and  all 
other  carriers,  but  this  simply  means  that  the  same  piece 
of  mail  may  be  handled  by  more  than  one  railway  clerk, 
that  a  package  of  mail  may  pass  over  two  or  more  mail- 
routes  on  the  way  to  its  destination.  The  accompanying 
map,  taken  from  the  report  made  by  Prof.  Henry  C. 
Adams  to  the  Commission  to  Investigate  the  Postal  Serv- 
ice, shows  the  routes  over  which  the  mail  traffic  is 
heaviest. 


THE  MAIL  SERVICE   OP  THE  RAILWAYS 


175 


A  table  showing  the  entire  mail  transportation  serv- 
ice by  all  routes  and  carriers  indicates  something  concern- 
ing the  extent  of  the  service  performed  by  the  railroads. 

The  Mail  Service  in  Operation  June  30^  1901 


Service. 


Star  routes 

Special  office  routes 

Steamboat  routes 

Railroad  routes 

Railway  post-office  car  routes .  . . 
Railway    mail    service,    officers 

and  clerks 

Mail  messenger  routes 

Wagon  routes  (in  cities) 

Electric  and  cable  car  routes. , . . 

Pneumatic-tube  routes. 

Necessary  and  special  facilities 

on  trunk  lines 

Mail  equipments 


Number. 


22,797 
1,666 

189 
2,746 

273 

9,105 

7,353 

234 

326 

5 


Aggregate 
length,  miles. 


267,357.14 
17,794.09 
33,970.90 

183,358.54 
45,779.68 


5,091.16 

1,271.64 

2,956.93 

8.05 


Total  inland  service 

Foreign  mails : 

Aggregate  cost $2,213,396. 74 

Less   intermediate  service  to  foreign 
countries 150,859.58 


Total 


Annual  rate  of 
expenditure. 


$5,204,416.86 

32,393.15 

542,985.32 

33,831,390.24 

4,638,234.03 

9,679,036.74 
995,811.76 
737,382.94 
362,614.17 
222,266.00 

195,682.50 
318,028.34 


$56,810,242.05 


2,062,537.16 


$58,872,779.21 


The  star  routes  are  those  over  which  the  mails  are 
carried  by  wagon  or  horseback  service  between  places 
not  reached  by  railroads  or  steamboats.  The  special 
office  service  is  "  but  a  temporary  arrangement  for  the 
supply  of  newly  established  post-offices  that  are  not  on 
or  near  the  lines  of  existing  routes,  and  as  soon  as  the 
new  office  shows  a  number  of  people  to  be  supplied,  or  an 
amount  of  mail  to  be  carried  that  will  justify  such  action, 
regular  contract  service  is  provided  for  its  supply."  The 
surprising  fact  shown  by  the  table  is  the  number  and 
length  of  the  routes  over  which  horses  are  used  to  trans- 


1Y6  AMERICAN  RAILWAY  TRANSPORTATION 

port  the  mails.  The  star  and  special  office  routes  are  the 
ones  which  reach  the  scattered  population  and  enable 
them  to  share  indirectly  in  the  facilities  of  the  railway 
mail  service.  The  amount  of  mail  carried  beyond  the 
railroad  stations,  however,  is  a  relatively  small  share  of 
the  total,  the  greater  volume  of  traffic  moving  by  rail 
between  the  large  cities. 

The  assorting  of  mail  while  in  transit  was  begun  in 
this  country  in  1862,  when  Mr.  William  A.  Davis,  who 
was  then  chief  clerk  in  the  mailing  department  of  the 
post-office  at  St.  Joseph,  Mo.,  fitted  up  the  first  railway 
postal  cars.  These  cars  were  run  on  the  Hannibal  and 
St.  Joseph  Railroad,  and  were  put  in  service  to  facilitate 
the  prompt  forwarding  of  the  overland  mails  westward 
from  St.  Joseph,  an  important  distributing  point  at  which 
the  mails  were  then  transferred  from  the  railroad  to  the 
"  overland  stages."  The  advantages  of  having  the  mails 
reach  the  distributing  point  assorted  ready  to  be  for- 
warded without  delay  to  their  several  destinations  were 
quickly  recognized,  and  the  traveling  post-office  was  soon 
established  on  the  principal  lines  of  railroad. 

In  1901  there  were  1,013  whole  cars  equipped  as 
post-offices  and  2,761  more  containing  postal  apartments. 
In  most  cases  these  postal  cars  are  run  singly  as  a  part 
of  a  passenger-train,  but  over  the  routes  where  the  mails 
are  heaviest  "  fast  mail-trains "  are  run  composed  en- 
tirely of  postal  cars.  According  to  Mr.  Tunell,  the  mail 
business  over  a  particular  route  is  generally  an  adjunct 
of  the  passenger  service  until  a  weight  of  50,000  pounds 
is  reached  for  a  single  mail,  and  when  that  weight  is 
exceeded  fast  mail-trains  are  put  into  service  and  "  run 
at  a  very  high  rate  of  speed  wholly  or  almost  wholly  to 
expedite  the  mails." 

The  postal  cars  now  being  put  into  service  are  models 
of  the  builder's  art.     They  are  60  feet  in  length,  built 


THE  MAIL  SERVICE  OP   THE  RAILWAYS  lYY 

especially  strong,  mounted  on  the  best  of  trucks,  and 
are  lighted  and  heated  by  the  most  modern  appliances. 
The  Government  specifies  the  kind  of  cars  to  be  used, 
and  every  effort  is  made  to  insure  the  safety  of  the  mails 
and  the  messengers,  and  to  facilitate  the  accurate  and 
rapid  assortment  of  the  mails.  In  these  traveling  post- 
offices  much  of  the  work  is  performed  th^t  was  formerly 
done  at  the  offices  in  the  distributing  centers.  The 
amount  and  importance  of  the  work  done  on  these  postal 
cars  are  well  shown  by  an  instance  cited  in  Mr.  Tunell's 
book  on  the  Railway  Mail  Service.  "  On  the  arrival  of 
the  great  mail-trains  in  Chicago  in  the  morning,  the 
letter  mail  for  the  business  portion  of  the  city  is  actu- 
ally ready  for  the  carriers,  and  the  letters  for  the 
remainder  of  the  city  are  sorted  and  ready  to  go  at  once 
to  their  respective  stations.  Chicago  alone  thus  requires 
about  175  separations."  It  was  stated  by  the  Postmaster- 
General  in  1895  that  "it  is  the  intention  eventually  to 
absorb  all  the  work  of  city  distribution  into  the  railway 
mail  service  whenever  mails  can  be  expedited  thereby." 

The  services  performed  by  the  railroad  companies  in 
the  transportation  of  the  mails  consist  chiefly  of  provi- 
ding and  equipping  the  postal  cars  and  hauling  those  and 
the  other  cars  used  for  carrying  the  mails  over  the  routes 
designated  by  the  Government.  Many  people  suppose 
that  those  are  the  only  services  rendered  by  the  compa- 
nies; but  there  are  several  other  duties  performed  by  the 
railroads  in  connection  with  the  carriage  of  the  mails. 
The  employees  of  the  railroad  company  are  required  to 
load  the  mail  into  the  cars,  and  when  the  mails  are  not  in 
charge  of  a  messenger  they  are  unloaded  by  the  company's 
agent.  The  transfer  of  the  mails  from  car  to  car  and  from 
station  to  station  when  that  service  is  necessary  is  made 
by  the  company.  Except  in  the  large  cities,  where  the 
carting  of  the  mails  is  done  by  the  post-office,  the  railroad 
13 


1Y8  AMERICAN  RAILWAY  TRANSPORTATION 

company  carries  the  mails  between  the  station  and  the 
office.  At  way-stations  and  intermediate  post-offices  the 
companies  are  not  obliged  to  carry  the  mails  more  than 
80  rods,  but  at  terminal  stations  there  is  no  limit  to  the 
distance.  In  the  large  cities  the  postal  cars  must  be 
placed  in  the  central  station  at  a  convenient  place  for 
loading,  and  they  must  remain  there  several  hours  before 
the  departure  of  the  train  by  which  they  are  taken,  in 
order  that  the  clerks  may  have  the  assortment  of  the 
mail  well  under  way  when  the  train  pulls  out.  It  is  of 
course  a  matter  of  considerable  expense  to  the  railroad 
companies  to  provide  space  for  the  mail-cars  in  their 
usually  crowded  passenger  terminals.  The  labor  and  ter- 
minal expenses  incurred  by  the  railroad  companies  in  the 
mail,  service  are  said  by  the  companies  to  be  appreciably 
greater  than  for  the  express  business. 

The  Government  r^uires  the  railroads  to  give  the 
mail-trains  the  right  of  way  over  all  other  trains.  The 
postal  cars  must  usually  be  attached  to  the  fastest  trains, 
and  the  mails  must  be  taken  by  such  trains  as  the  Govern- 
ment may  select.  The  companies  are  not  permitted  to 
leave  any  mail  behind;  whatever  the  demand  for  space 
may  be,  the  demand  must  be  met;  and,  as  has  already 
been  stated,  the  Government  stipulates  the  kind  of  cars 
to  be  used  for  the  postal  service,  requires  the  cars  to  be 
stationed  at  the  terminals  where  they  can  be  readily 
loaded  and  unloaded;  stipulates  that  companies  shall 
attend  to  the  handling  of  the  mail  immediately  on  the 
arrival  of  the  trains,  and  under  certain  conditions  that 
they  shall  carry  the  mails  between  the  stations  and  the 
post-offices.  These  strict  regulations  are  necessary  to 
secure  the  speedy  and  reliable  mail  service  enjoyed  by  the 
public;  but  they  make  the  transportation  of  the  mails 
an  expensive  service,  for  the  performance  of  which  the 
Government  makes  large  outlays. 


THE  MAIL  SERVICE  OB^  THE  RAILWAYS 


179 


As  the  table  on  page  175  indicates,  the  Government 
paid  out  nearly  $59,000,000  in  the  fiscal  year  1901  for 
the  transportation  of  the  domestic  and  foreign  mails. 
This  was  somewhat  over  half  the  total  receipts  of  the 
Post-Office  Department,  which  for  that  year  amounted 
to  $109,531,778.  The  railroads  received  $38,519,624— 
about  one-third  of  the  Government's  total  postal  receipts 
— for  carrying  the  mails  and  maintaining  the  post-office 
car  seryice.  In  addition  to  this  the  Government  paid  $195,- 
682  to  five  companies  that  provided  "  special  facilities  " 
over  eight  routes.  In  order  to  secure  an  especially  fast 
mail  service  over  a  particular  route  or  a  service  at  an 
hour  when  a  railroad  company  could  not  afford  to  run  a 
train  without  extra  compensation.  Congress  makes  a  few 
special  appropriations  each  year.  These  "  special  facili- 
ties ''  are  not  considered  necessary  by  the  Post-Office  De- 
partment, which  does  not  favor  the  action  taken  by 
Congress. 

In  accordance  with  acts  of  Congress  passed  in  1873, 
1876,  and  1878,  the  pay  received  by  the  railroads  for 
carrying  the  mails  is  based  upon  the  weight  of  the  mail 
carried,  the  distance  the  mail  is  transported,  and  the 
number  of  full-sized  postal  cars  operated  b}^  the  railroad. 
The  maximurn  rates  now  paid  are  shown  by  the  following 
tables,  taken  from  Mr.  Tunell's  book,  already  referred  to: 


Rates  based  on  the  Weight 

'of  the  Mails 

Average  Daily  Weight  of  Mails  over  Whole 
Route. 

Pay  per  mile 
per  annum. 

Rate  per  ton 
per  mile. 

200  pounds 

$42.75 

64.12 

85.50 

106.87 

128.25 

149.62 

171.00 

21.37 

$1 

.171 

500        "       

.702 

1,000       "      

.468 

1,500       "      

.390 

2,000       "      ■ 

.351 

3,500       "            .                       

234 

5,000       ''          

.187 

Eacli  2,000  pounds  in  excess  of  5,000  pounds 

.058 

180 


AMERICAN   RAILWAY  TRANSPORTATION 


The  additional  pay  received  by  the  railroads  that  supply 
and  haul  full-sized  railway  post-office  cars  is  as  follows: 

Rates  alloived  for  Full-sized  Post-Office  Cars 


Length  op  Car. 

Rate  per  annum  per 
mile  of  track. 

Rate  per  mile  run  by  cars. 

40  feet 

$25.00 
30.00 
40.00 
50.00 

3.424  cents. 

45    "   

4.109       " 

50    " 

5.479      " 

55  to  60  feet 

6.849      " 

In  order  to  secure  the  rates  paid  for  hauling  postal 
cars  as  given  in  the  table,  the  cars  must  make  a  round 
trip  daily.  If  a  car  makes  the  trip  but*  one  way  each 
day,  the  pay  received  is  one-half  the  rate  named  in  the 
table.  As  was  stated  on  page  175,  these  post-office  cars 
were  run,  in  1901,  over  273  routes  having  a  total  length 
of  45,779  miles,  and  the  service  cost  the  United  States 
$4,638,234. 

The  table  giving  the  rates  based  on  the  weight  of 
the  mails  shows  that  the  rate  of  compensation  is  much 
higher  for  small  than  for  large  quantities  of  mail-mat- 
ter. The  pay  per  ton  per  mile  for  a  daily  mail  averaging 
2,000  pounds  is  only  half  that  for  a  daily  weight  of  500, 
and  the  ton  mile  rate  on  5,000  pounds  per  day  is  but 
slightly  more  than  one-fourth  the  rate  for  500  pounds  a 
day.  As  the  mail  carried  by  a  railroad  grows  in  weight, 
the  pay  received  by  the  railroad  increases,  but  not  in  pro- 
portion to  the  volume  of  traffic. 

The  daily  weight  of  mail  carried  by  the  railroads  over 
the  various  routes  is  ascertained  by  weighing  the  mails 
for  thirty  or  more  consecutive  working  days  once  in  four 
years.  The  average  daily  weight  during  the  period  of 
weighing  is  assumed  to  be  the  daily  average  for  the  four 
succeeding  years.  As  a  matter  of  fact,  there  is  a  consid- 
erable increase  each  year  in  the  amount  of  mail-matter, 


THE  MAIL  SERVICE  OF  THE  RAILWAYS  181 

and  the  railroad  companies,  toward  the  close  of  the  four 
years  that  intervene  between  the  weighings,  carry  more 
weight  of  mail  than  they  are  paid  for  transporting.  It 
ha&  been  estimated  that  the  weight  paid  for  is  about  91 
or  92  per  cent  of  the  weight  transported. 

The  receipts  of  the  Post-Office  Department  have  usu- 
ally been  considerably  less  than  the  expenditures,  and  this 
has  caused  Congress  and  various  individuals  to  inquire 
whether  the  railroad  companies  are  being  paid  too  high 
rates  for  carrying  the  mails. 

The  postal  deficits  are  caused  by  the  cheap  rates  of 
postage  charged  for  second-class  matter,  and  by  various 
evasions  of  the  law  by  publishers  and  others  whereby 
third-class  matter,  which  should  pay  8  cents  a  pound  for 
postage,  is  classified  as  second-class  matter,  and  sent  at  the 
publisher's  rate  of  one  cent  a  pound.  The  second-class 
matter  weighs  much  more  than  that  of  all  the  other 
classes,  comprising  nearly  seven-tenths  of  the  total  weight. 
Most  of  the  second-class  mail  pays  only  the  cent-a-pound 
rate,  and  it  was  estimated  by  Postmaster-General  Smith 
that  the  429,444,573  pounds  of  mail  taken  at  the  pound 
rate  equaled  60  per  cent  of  all  the  mail  handled  by  the 
post-offices  in  the  fiscal  year  I9OI.  The  total  receipts 
from  the  mails,  not  including  the  money-order  business, 
that  year  were  $109,531,778,  but  the  receipts  from  60 
per  cent  of  mail  which  paid  the  pound  rate  were  only 
$4,294,445 — less  than  4  per  cent  of  the  total. 

The  remuneration  received  by  the  railroads  for  car- 
rying the  mails  being  based  on  weight,  distance,  and 
number  of  postal  cars  used,  the  Government  pays  the 
same  rate  for  all  classes  of  matter.  Postmaster-General 
Smith  calculated  that  it  cost  the  Government  not  less 
than  five  cents  a  pound  for  the  transportation  of  the 
second-class  mail-matter,  and  that  there  was  a  net  loss 
of  four  cents  a  pound,  or  $17,277,783,  in  1901,  incurred 


182  AMERICAN  RAILWAY  TRANSPORTATION 

in  the  carriage  of  second-class  matter  handled  at  pound 
rates.  This  loss  was  more  than  four  times  the  total 
deficit  for  that  year,  most  of  the  heavy  losses  connected 
with  the  second-class  mail  being  covered  by  the  profits 
derived  from  handling  the  first-class  mail. 

In  1901  the  Postmaster-General  issued  rules  provi- 
ding for  a  stricter  classification  of  mail-matter,  and  the 
exclusion  from  the  pound  rates  of  the  second-class  printed 
matter  clearly  belonging  in  the  third  class.  These  new 
rules  and  the  large  use  of  the  mails  accompanying  the 
great  prosperity  in  business  made  the  mail  receipts  dur- 
ing the  year  ending  June  30,  1902,  nearly  equal  the 
expenditures.  The  deficit  is,  however,  liable  to  recur 
unless  Congress  shall  so  amend  the  postal  laws  as  to 
prevent  the  use  of  the  second-class  by  those  not  entitled 
to  the  privilege  of  pound  rates. 

The  cost  to  the  Government  of  the  railway  mail  serv- 
ice does  not  seem  exorbitant.  Although  the  rates  paid 
were  fixed  as  far  back  as  1878,  the  law  passed  then  pro- 
vides for  a  declining  rate  of  pay  with  the  increasing 
volume  of  mail  traffic.  The  rates  now  paid  for  carrying 
the  mails  are  somewhat  higher  than  the  rates  charged  on 
express  matter,  but  that  is  fully  justified  by  the  differ- 
ences in  the  service.  Mail-matter  is  entitled  to  a  higher 
classification  than  express  matter,  and  the  conditions  im- 
posed on  the  railroads  in  the  mail  service  are  more  exact- 
ing than  those  which  govern  the  express  traffic.  One  meth- 
od of  testing  the  fairness  of  the  rates  for  carrying  the  mail 
is  to  compare  the  decline  in  railway  mail  pay  with  the 
decrease  in  passenger  and  freight  charges.  The  investi- 
gations made  by  Prof.  Henry  C.  Adams,  in  1899-1900, 
for  the  Joint  Congressional  Commission  on  Postal  Affairs, 
shows  that  the  average  rate  paid  for  transporting  the 
mails  in  the  United  States  has  declined  much  faster  than 
passenger  fares  have,  but  has  not  fallen  so  rapidly  as  the 


THE  MAIL  SERVICE  OF  THE  RAILWAYS  183 

average  freight  rate.  This  conclusion  is  also  corrobo- 
rated by  a  study  made  by  Mr.  Tunell  of  the  rates  on  two 
railroad  systems. 

For  twenty  years  the  Government  has  annually  paid 
the  railroads  about  one-third  of  its  total  expenditures  for 
the  mail  service.  Although  the  railroads  have  been  sub- 
stituted for  other  carriers  to  a  large  extent,  and  the  speed 
at  which  the  mails  are  moved  has  been  greatly  increased, 
and  although  much  of  the  work  formerly  done  in  the  dis- 
tributing offices  has  been  transferred  to  the  railway  post- 
office  cars,  the  share  of  the  total  mail  expenditures  re- 
ceived by  the  railroads  for  their  mail  service  has  not  in- 
creased. The  decline  in  the  rate  paid  by  the  Government 
per  mile  per  ton  of  mail  carried  has  made  this  possible. 

EEFERENCES    FOR    FUKTHER    READING 

Annual  Report  of  the  Postmaster- General.  [The  reports  of  the  assist- 
ant postmasters-general  contain  a  detailed  account  of  the  work- 
ings of  the  different  branches  of  the  mail  service.] 

Tunell,  G.  G.  Railway  Mail  Service,  1901.  [A  volume  containing 
much  information,  especially  regarding  the  payments  received  by 
the  railroads  for  carrying  the  mails.] 

Tunell,  G.  G.  Railway  Mail  Service:  A  Historical  Sketch.  [A 
pamphlet  of  24  pages  published  by  R.  R.  Donnelley  &  Sons,  Chi- 
cago, 1902.] 

History  of  the  Railway  Mail  Service.  Executive  Document  40,  Forty- 
eighth  Congress,  second  session,  1885. 

Testimony  taken  by  the  Commission  to  Investigate  the  Postal  Service. 
Published  as  a  Government  document,  1900.  Three  volumes, 
parts  i  and  ii  dealing  with  Railway  Mail  Pay,  and  part  iii  with 
Second-Class  Mail-Matter,  Pneumatic-Tube  Service,  etc.  The 
second  volume  contains  a  most  instructive  Special  Report  on 
Railway  Mail  Pay,  by  Prof.  Henry  C.  Adams,  statistician  to  the 
Interstate  Commerce  Commission. 

Newcomb,  H.  T.  The  Postal  Deficit,  1901.  A  volume  written  to 
show  that  the  railroads  are  not  paid  an  excessive  sum  for  carry- 
ing the  mails. 


CHAPTEK    XIII 

THE    ORGANIZATION    OF    THE    SERVICE 

A  RAILROAD  company  is  a  large  corporation  with  com- 
plex activities  carried  on  over  wide  areas  by  an  army  of 
employees  sometimes  numbering  tens  of  thousands.  To 
perform  its  services  with  precision,  to  maintain  author- 
ity, enforce  responsibility,  and  insure  financial  honesty 
throughout  all  grades  of  officials  and  employees,  and  thus 
to  conduct  its  services  with  benefit  to  the  public  and 
profit  to  itself,  the  corporation  requires  a  detailed  and 
highly  specialized  organization  of  maximum  efficiency. 
There  must  be  an  unbroken  line  of  responsibility  from  the 
lowest  subordinate  to  the  president,  and  the  organization 
by  which  this  is  accomplished  must  have  ffexibility  enough 
to  permit  of  improvements  in  the  service  and  the  adop- 
tion of  new  technical  and  financial  methods. 

The  railroad  company  in  common  with  other  corpora- 
tions has  in  its  organization  departments  and  officials  for 
the  management  of  its  financial  and  legal  affairs.  The 
stockholders,  composing  the  company,  choose  directors 
to  serve  as  a  governing  body,  and  the  directors  select  a 
president,  secretary,  treasurer,  comptroller,  and  a  legal 
counselor.  Within  this  general  corporate  organization 
there  is  also  built  up  a  specialized  organization  to  accom- 
plish the  work  which  the  company  exists  to  perform — 
the  safe  and  speedy*  transportation  of  persons  and  things. 

The  special  transportation  organization  is  concerned 
with  four  general  duties.  One  is  to  provide  and  main- 
184 


THE  ORGANIZATION  OF  THE  SERVICE  185 

tain  in  condition  for  use  a  roadway;  another  is  to  obtain, 
keep  in  order,  and  operate  vehicles  of  such  number  and 
variety  as  the  traffic  may  require;  the  third  is  to  furnish 
facilities  that  will  enable  passengers  and  shippers  to  use 
the  vehicles  and  road-bed;  and  the  fourth  is  to  arrange 
the  financial  and  business  relations  of  the  carrier  with  its 
patrons  in  such  a  way  as  to  promote  the  interests  of  both 
parties. 

Corresponding  to  each  of  these  several  kinds  of  cor- 
porate and  specialized  activities,  there  is  a  department  of 
the  railroad  company^s  organization.  Two  departments 
are  concerned  strictly  with  the  affairs  of  the  company  as 
a  corporation,  the  secretary's  office  and  the  law  depart- 
ment. The  secretary's  department  has  charge  of  the  com- 
pany's records,  and  of  the  great  volume  of  correspondence 
carried  on  within  the  corporation,  and  with  outside  organ- 
izations and  individuals.  In  the  law  department  are  exe- 
cuted the  many  contracts  affecting  the  finances  and  busi- 
ness activities  of  the  corporation;  and  the  counsel  and 
solicitors  connected  with  this  department  protect  the 
interests  of  the  company  in  the  legal  controversies  un- 
avoidable in  the  conduct  of  great  business  enterprises. 

The  financial  department  is  concerned  with  the  affairs 
of  the  general  corporation,  and  is  the  fiscal  agent  of  the 
special  organization  by  which  the  transportation  service 
is  performed.  It  has  nothing  to  do  with  operating  the 
transportation  machine,  its  duties  being  connected  solely 
with  the  receipts  and  disbursements  resulting  from  con- 
ducting transportation.  This  highly  important  depart- 
ment is  usually  under  the  immediate  supervision  of  one 
of  the  vice-presidents  of  the  company.  It  includes  the 
offices  of  the  treasurer  and  comptroller.  The  duties  of 
the  treasurer  are  those  ordinarily  pertaining  to  that 
officer  in  all  business  organizations.  He  must  account 
to  the  corporation  for  all  its  income  and  for  all  money 


186  AMERICAN  RAILWAY  TRANSPORTATION 

paid  out;  but  his  chief  duty  is  to  see  that  none  but  prop- 
erly authorized  payments  are  made  from  the  funds  of 
the  company.  He  is  also  the  officer  who  keeps  the  com- 
pany informed  as  to  the  status  of  its  finances. 

The  comptroller  and  the  auditors  under  him  are  the 
company's  bookkeepers,  charged  with  the  duty  of  keep- 
ing a  detailed  record  of  the  receipts  from  the  freight, 
passenger,  mail,  express,  and  from  other  sources  of  rev- 
enue and  with  recording  all  expenditures.  In  the  comp- 
troller's office  also  elaborate  statistical  compilations  are 
made  for  the  information  of  officials  in  charge  of  the 
different  departments  of  the  railroad,  and  for  the  reports 
published  by  the  National  and  State  governments.  The 
financial  and  traffic  data  furnished  by  the  ^treasurer  and 
comptroller,  and  the  facts  regarding  car  and  train  move- 
ments given  by  the  car  accountant's  office  in  the  oper- 
ating department,  supply  most  of  the  material  used  by 
the  president  and  directors  in  preparing  their  annual 
reports  to  the  stockholders  composing  the  company. 

The  part  of  the  railroad  organization  which  is  directly 
and  solely  concerned  with  transportation  is  divided  into 
the  operating  and  traffic  departments^  each  of  which  is 
large  and  for  the  purposes  of  efficient  administration  is 
necessarily  subdivided  into  several  distinct  branches  of 
service.  The  operating  department  is  the  most  compre- 
hensive of  all,  and  to  it  is  entrusted  the  work  of  providing 
and  operating  the  machine  that  moves  the  traffic.  In 
doing  this  the  operating  department  performs  three  gen- 
eral duties:  it  provides  the  railway  and  all  the  structures 
pertaining  to  the  line,  it  supplies  the  equipment,  and  runs 
the  trains.  Each  of  these  duties  is  made  a  special  branch 
of  the  service. 

The  operating  department,  as  a  whole,  is  under  the 
control  of  a  general  manager,  who  is  the  most  respon- 
sible and  usually  the  hardest  worked  subordinate  officer 


THE  ORGANIZATION  OF  THE  SERVICE  187 

in  the  organization.  Sometimes  one  of  the  vice-presi- 
dents of  the  company  is  general  manager. 

The  first  of  the  three  main  divisions  of  the  operating 
department  is  the  roadway  department,  which  constructs 
and  maintains  everything  connected  with  the  road — the 
track,  bridges,  buildings,  pumping-machinery,  and  signal 
apparatus.  These  engineering  works  are  in  charge  of  a 
chief  engineer,  who  is  sometimes  subordinate  to  the  gen- 
eral manager  and  at  times  of  equal  rank  with  him.  Sub- 
ordinate to  the  chief  engineer  and  the  general  man- 
ager are  the  engineer  in  charge  of  new  construction, 
the  one  entrusted  with  maintenance  of  way,  and  the  one 
who  constructs  the  bridges  and  buildings.  Each  of 
these  engineers  has  the  necessary  force  of  assistants  and 
workmen. 

The  branch  of  the  operating  department  in  charge  of 
the  construction  and  maintenance  of  locomotives  and  cars 
is  usually  called  the  machinery  department.  Some  com- 
panies buy  all  new  equipment,  and,  in  their  case,  the 
machinery  branch  of  the  service  is  busied  only  with 
repairs  and  maintenance,  but  many  of  the  large  railroad 
corporations  build  at  least  a  part  of  the  locomotives  and 
cars  used  on  their  lines.  The  repairing  and  constructing 
of  locomotives  is  in  charge  of  a  general  superintendent 
or  chief  engineer  of  motive  power,  assisted  by  a  master 
machinist,  a  master  car  builder,  and  the  requisite  fore- 
men and  subordinates. 

The  other  main  division  of  the  operating  branch  of 
the  organization  is  the  transportation  department,  which 
manages  the  equipment  and  does  the  work  of  moving 
persons  and  things.  At  the  head  of  this  department  is 
a  general  superintendent  of  transportation,  and,  as  Mr. 
Henry  S.  Haines  says  in  his  book  on  American  Railway 
Management,  he  has  control  of  "  all  the  instrumentalities 
essential  to  transportation  from  the  time  that  a  person  or 


188  AMERICAN  RAILWAY  TRANSPORTATION 

thing  comes  under  the  care  of  the  corporation  until  they 
pass  out  of  it.''  The  authority. of  this  officer  extends  over 
"  the  station  and  yard  service,  the  cleaning  and  handling 
of  engines  and  cars,  the  movement  of  trains,  the  receiving, 
loading  and  billing,  unloading  and  delivery  of  freight." 
The  services  as  a  whole  are  performed  by  two  sets  of 
men,  those  composing  the  station  force,  and  those  oper- 
ating the  trains  or  the  train  crews.  Each  of  these  forces 
of  men  has  its  own  organization  in  charge  of  a  chief  re- 
sponsible to  the  general  superintendent  and  the  general 
manager. 

The  relations  of  the  carrier  and  its  patrons  are  ad- 
justed by  the  traffic  departmenty  which  solicits  business, 
classifies  the  traffic,  determines  charges,  collects  and  turns 
over  to  the  auditor  and  comptroller  of  the  financial  de- 
partment the  revenues  received  from  the  patrons  of  the 
road,  settles  as  far  as  possible  the  claims  of  passengers 
and  shippers  for  lost  baggage  and  freight,  and  in  general 
concerns  itself  with  increasing  the  traffic  and  earnings 
of  the  company.  It  is  the  business  of  the  operating 
department  to  conduct  the  transportation  service  econom- 
ically, expeditiously,  and  safely;  it  is  the  object  of  the 
traffic  department  to  secure  the  maximum  passenger  and 
freight  business  at  remunerative  rates.  One  of  the  vice- 
presidents  of  the  company  usually  has  supervision  of  this 
department,  which  is  in  direct  charge  of  a  traffic  man- 
ager, under  whom  there  are  the  general  freight-agent  and 
the  general  passenger  agent,  whose  duties  are  indicated 
by  the  title  of  their  positions.  Under  the  general  pas- 
senger agents  are  the  division  passenger,  ticket,  and  bag- 
gage agents,  and  under  the  general  freight-agent  are  the 
division  freight-agents  and  the  managers  of  the  fast 
freight  lines.  Sometimes  the  freight  claim  agent  is  sub- 
ordinate to  the  general  freight-agent,  and  sometimes  is 
coordinate  with  that   officer.      Some   companies  have   a 


THE  ORGANIZATION  OF  THE  SERVICE  189 

chief  claim  agent  subordinate  only  to  the  traffic  manager 
and  those  above  him.  The  general  passenger  agent  has 
charge  of  the  mail  and  express  services. 

A  large  railroad  requires  a  great  variety  of  supplies, 
and  for  the  purchase  and  distribution  of  these  supplies  it 
has  been  found  best  to  organize  a  distinct  purchasing 
department,  usually  directly  subordinate  only  to  a  vice- 
president  of  the  company,  and  hence  coordinate  with  the 
other  departments  of  the  service.  The  purchasing  agent 
is  at  the  head  of  the  department,  and  subordinate  to  him 
are  the  storekeepers,  who  distribute  the  supplies  upon 
the  presentation  of  properly  authorized  requisitions. 
Formerly  it  was  customary  for  each  department  to  pur- 
chase its  own  supplies,  but  the  plan  of  having  all  pur- 
chases made  by  one  officer  is  more  economical,  and  has 
been  generally  adopted. 

Every  railroad  company  is  the  owner  of  a  large 
amount  of  real  estate,  the  purchases  and  transfers  of 
which  are  in  charge  of  a  real-estate  agent  and  a  chief 
conveyancer,  subordinate  either  to  the  president  or  to  a 
vice-president  of  the  company.  Some  of  the  Western 
railroads  received  large  grants  of  public  land,  the  sale  of 
which  is  put  in  charge  of  a  special  department. 

The  business  of  insuring  the  buildings  of  the  com- 
pany against  losses  from  fire,  whether  by  the  plan  of  com- 
pany insurance  or  by  means  of  fire-insurance  companies, 
is  sometimes,  although  not  often,  in  charge  of  an  insurance 
department,  with  a  superintendent  at  the  head. 

Many  railroad  corporations  have  relief  departments 
to  provide  aid  for  disabled  or  sick  employees.  With  some 
companies  the  relief  consists  only  in  maintaining  hospitals, 
while  others  have  fully  organized  "  relief  departments  " 
to  which  the  employees  of  the  company  are  expected  to 
belong  and  from  which  the  members  receive  financial  aid 
in  case  of  sickness  or  accident.     The  family  or  heir  is 


190  AMERICAN  RAILWAY  TRANSPORTATION 

paid  a  stipulated  benefit  upon  the  death  of  a  member. 
These  departments  are  supported  mainly  by  the  em- 
ployees, but  in  part  by  the  company,  which  bears  the 
expenses  and  assumes  the  risks  of  administration. 

The  organization  of  a  modern  railroad  corporation 
seems  complicated  and  detailed,  but  the  main  branches 
and  subdivisions  are  not  many  and  not  hard  to  hold  in 
mind.  The  foregoing  account  of  the  several  departments 
can  be  made  more  concrete  by  studying  the  organization 
of  any  large  railroad  company.  The  organization  of  the 
Erie,  Illinois  Central  and  Pennsylvania  Railroads  are  here 
given  in  outline,  but  there  are  others  equally  typical 
which  the  student  might  study  to  advantage.  The  best 
organization  to  study  is  that  of  the  railroad  whose  offices 
are  nearest  at  hand. 

The  organization  of  the  Erie  Railroad  in  1900  is 
shown  by  a  chart.  This  is  the  clearest  way  of  presenting 
the  inter-relations  of  the  several  parts  of  the  system. 
Erom  the  tables  given  for  the  Illinois  Central  and  the 
Pennsylvania,  charts  can  readily  be  constructed. 

The  tables  on  pages  191-193  show  the  main  depart- 
ments and  the  principal  subdivisions  to  be  found  in  the 
organization  of  all  large  railroad  companies.  The  lines  of 
authority  from  the  top  to  the  bottom  of  the  service  and  of 
responsibility  from  the  bottom  to  the  top  are  shown  for 
each  part  of  the  organization. 

The  Pennsylvania  Railroad  Company,  being  larger 
than  the  Illinois  Central,  with  a  heavier  traffic  and  more 
miles  of  track,  has  its  lines  separated  into  more  "  divi- 
sions." The  Pennsylvania  officials  below  the  general 
superintendents  are  shown  for  only  one  of  the  seven 
general  divisions.  Of  these  seven,  the  Pennsylvania  Rail- 
road division  is  by  far  the  largest,  and  comprises  twelve 
important  subdivisions ;  but  the  United  Railroads  of  New 
Jersey  division,   although  much  smaller,  has  nearly  the 


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THE  ORGANIZATION  OF  THE  SERVICE 


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AMERICAN  RAILWAY  TRANSPORTATION 


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THE  ORGANIZATION  OF  THE  SERVICE 


193 


Organization  of  Pennsylvania  Railroad.  Table  showing 
Organization  of  the  United  Railroads  of  New  Jersey 
Divisions 


Superintendent 
motive  power. 


V  Assistant  engineer. 


Principal 
engineer. 


assistant 


Superintendent    New 
York  division. 


Superintendent 
boy  division. 


Superintendent  Belvi- 
dere  division. 


Am- 


Master  and  assistant 
master  mechanic. 

Division  operator. 

Ticket  receivers. 

Train  masters. 

Station  masters. 

Road  foreman  of  en- 
gines and  assistant. 

General  foreman. 

Lighter,  masters. 


,  Assistant  engineer. 


'Master  mechanics. 
Division  operator. 
Ticket  receiver. 
Train  masters. 
Station  masters. 
Road  foreman  of  en- 
gines. 


.  Assistant  engineer. 


Master  mechanic. 
Division  operator. 
Train  masters. 
Road  foreman  of  en- 
gines. 

Assistant  engineer. 


Master  carpenters. 

Supervisors  and 
assistant  super- 
visors. 


Master  carpenter. 

Supervisors  and 
assistant  super- 
visors. 


f  Master  carpenter. 
\  Supervisor. 


Superintendent     Jer-  (  Superintendent  float- 
sey  City  ferries.  |      ing  equipment. 

Superintendent     and  ]  Superintendent  steam 
assistant      superin-   I      ^^^.  Delaware 

tendent     Delaware   T     ^^^  Ua.riis.n  Canal, 
and  Raritan  Canal.  J 
14 


194  AMERICAN  RAILWAY  TRANSPORTATION 

same  organization  and  practically  the  same  distribution 
of  duties  among  subordinate  officials. 

In  the  organization  of  every  large  railroad  system  it 
is  necessary  to  have  a  territorial  division  of  duties  within 
most  departments.  This  causes  a  table  outlining  the 
organization  to  appear  detailed,  but  it  is,  as  a  matter  of 
fact,  very  simple.  The  many  parts  of  the  large  railroad 
corporations  work  together  systematically,  like  the  parts 
of  the  great  locomotives  that  haul  their  trains. 

EEFERENCES    FOR    FURTHER    READING 

Haines,  Henry  A.     American  Railway  Management,  pp.  128-139. 

The  American  Railway.  Paper  by  E.  P.  Alexander  on  Railway  Man- 
agement, pp.  149-186. 

The  Railroad  Gazette.  April  27,  1900,  chart  of  organization  of  Penn- 
sylvania Railroad;  August  21,  1900,  chart  of  organization  of  Erie 
Railroad;  December  14,  1900,  chart  of  organization  of  Lehigh 
Valley  Railroad;  September  27,  1901,  chart  of  organization  of 
Illinois  Central  Railroad. 

The  Official  Guide  of  the  Railways  and  Steam  Navigation  Lines  of 
the  United  States  gives  a  list  of  the  principal  officers  of  each 
company,  and  thus  gives  an  indication  of  the  organization  of 
each  company. 


CHAPTER   XIV 

THE    ACGOUNl'S    AND    STATISTICS    OF    THE    EADLWAY    SERVICE 

Careful  accounting  is  essential  to  an  efficient  per- 
formance of  the  railroad  service,  and  a  general  under- 
standing of  railway  accounts  is  necessary  to  an  intelligent 
interpretation,  by  the  student  or  the  investor,  of  the 
financial  and  physical  condition  of  a  particular  railroad 
coinpany  or  system.  In  the  administration  of  every  large 
business  enterprises,  the  directors  and  officials  depend  upon 
the  accounts  for  the  information  upon  which  to  act ;  and 
in  the  railway  corporation  especially,  whose  activities 
are  scattered  over  a  wide  territory  and  are  carried  on  in 
distinct  departments,  each  employing  a  large  force  of 
men,  it  is  necessary  that  those  responsible  for  the  policy 
of  the  company  and  for  close  supervision  of  the  several 
branches  of  the  service  should  be  kept  fully  informed 
regarding  the  proj)e'rty,  the  receipts  and  expenditures, 
the  needs,  the  deficiencies,  and  the  accomplishments  of 
each  department.  In  the  accounts  as  now  kept  by  many 
railroad  companies  is  focused  a  clear  picture  of  the  con- 
dition of  the  physical  property  of  different  kinds,  of  thfe 
extent  of  the  several  classes  of  services  being  performed,  of 
the^  receipts  and  expenditures  connected  with  the  service, 
and  the  changes  taking  place  month  by  month  or  yeat 
by  year  in  the  property,  the  services,  and  the  finances 
of  the  company. 

The  figures  regarding  traffic  receipts  and  expenditures 
are  compiled  from  the  way-bills,  tickets,  reports,  vouchers, 

195 


196  AMERICAN  RAILWAY  TRANSPORTATION 

and  other  papers  sent  to  the  offices  of  the  treasurer  and 
comptroller.  These  papers  are  all  scrutinized  and  checked 
up,  and  the  contents  carefully  recorded  by  the  auditors 
who  are  subject  to  the  comptroller.  The  records  of  car 
movements,  train  and  engine  mileage,  are  kept  by  the 
car  accountants,  who  are  usually  subject  to  the  general 
superintendents  in  the  operating  or  transportation  de- 
partment. In  this  general  department,  likewise,  are  the 
engineers  in  charge  of  construction,  maintenance  of  way 
and  equipment,  whose  reports  contain  the  statistics  regard- 
ing the  physical  property. 

The  statistics  of  train,  car,  and  locomotive  perform- 
ance are  worked  up  in  detail  by  the  several  departments 
having  charge  of  the  performance.  The  auditor  gathers 
these  statistics  from  the  different  officials,  and  makes 
such  compilations  and  tabulations  as  may  be  needed. 
Ordinarily,  the  auditing  department  does  not  verify  the 
traffic  and  operating  statistics,  unless  some  evident  erroi* 
suggests  the  necessity  for  a  test.  The  statistics  of  the  cost 
of  handling  freight  traffic  per  ton  per  mile  are  worked 
up  in  the  auditor's  department  by  charging  to  the  freight 
and  passenger  services  respectively  such  expenses  as  can 
be  thus  classified,  and  by  dividing  between  the  two  serv- 
ices such  expenses  as  are  common  to  both,  sometimes 
according  to  the  earnings  and  sometimes  according  to  the 
locomotive  or  train  mileage  of  the  freight  and  passenger 
departments.  Different  companies  compute  statistics  of 
ton  mile  cost  by  dissimilar  rules,  and  such  statistics,  con- 
sequently, have  little  value  for  purposes  of  comparison. 

From  the  detailed  accounts  kept  by  the  auditor,  con- 
cise reports  are  prepared  monthly  and  yearly.  About 
the  25th  of  each  month  the  books  are  written  up  and 
posted  for  all  classes  of  transactions  carried  on  during 
the  previous  month.  Then  a  summarized  account  for  that 
month   is   prepared,    covering    the    earnings    from    each 


RAILWAY  ACCOUNTS  AND  STATISTICS  197 

source,  and  the  expenditures  for  operating  expenses, 
taxes,  rentals,  improvements,  construction,  and  equip- 
ment. This  account  contains  a  large  number  of  entries. 
The  operating  expenses  are  divided  into  four  large  classes 
and  fifty-three  subclasses.  Improvements,  construction, 
and  equipment  cover  thirty-eight  entries. 

From  the  proof-sheets  of  this  account  is  prepared  the 
auditor's  monthly  report,  which  includes  a  statement  of  the 
gross  earnings,  operating  expenses,  net  earnings,  improve- 
ments, construction  and  equipment,  and  also  contains  such 
statistical  information  as  may  be  desired  by  the  operating 
and  executive  departments — earnings  and  expenses  per 
mile  of  road,  per  passenger  and  freight  train  mile,  etc. 

The  accounts  covering  the  business  of  the  year  are 
summarized  and  briefly  discussed  in  the  annual  report,- 
which,  in  the  case  of  a  large  company,  necessarily  con- 
tains considerable  detail  and  covers  many  subjects.  The 
annual  report,  however,  is  readily  divisible  into  three 
general  parts:  one  dealing  with  income  and  expenditure, 
another  with  the  financial  affairs  of  the  company,  and  the 
third  with  the  traffic  and  physical  condition  of  the  prop- 
erty— track,  structures  of  all  kinds,  and  equipment. 

The  three  general  parts  of  the  annual  report  and  the 
main  subdivisions  are  shown  by  the  following  tabular 
outline,  taken,  with  slight  changes,  from  Thomas  F. 
Woodlock's  Anatomy  of  a  Railroad  Report: 

Outline  of  the  Contents  of  a  Railroad  Report 

I.  Income  or  revenue  account. 
1.  Gross  earnings. 

A.  From  operation. 

(a)  Passenger  traffic. 
(it)  Freight  traffic. 

(c)  Baggage,  mail,  express,  storage,  stock-yards,  eleva- 

toris,  steamers,  etc, 

(d)  Balance  of  car  mileage,  switching  charges. 

(e)  Telegraph  companies. 


198  AMERICAN  RAILWAY  TRANSPORTATION 

B.  From  interest  on  loans  and  investments,  rentals,  and 
other  income. 

2.  Operating  expenses. 

(a)  Maintenance  of  way  and  structures. 

(1)  Repairs  of  roadway. 

(2)  Renewal  of  rails  and  ties. 

(3)  Repairs  and  renewals  of  bridges,  buildings, 

and  all  other  structures. 

(b)  Maintenance  of  equipment.  , 

(c)  Conducting  transportation. 

(1)  Salaries  and  wages  (operating  department). 

(2)  Supplies  (operating  department). 

(3)  Car  mileage  and  switching  charges. 

(4)  Damages  for  injuries. 

(5)  Advertising. 

(6)  Outside  agencies  and  commissions. 

'  (7)  Rents  of  tracks,  yards,  and  terminals. 

(d)  General  expenses. 

3.  Net  income  from  all  sources  (gross  earnings  less  operating 

expenses). 

4.  Fixed  charges  (interest  on  funded  and  floating  debts,  rentals, 

taxes,  and  sinking-funds). 

5.  Dividends,  surplus,  and  "profit  and  loss"  account. 
li.  Financial  statement  or  balance-sheet. 

1.  Capital  assets. 

(a)  Property  and  franchise  or  plant  and  equipment  or 

"cost  of  road  and  equipment." 

(b)  Investments  in  real  estate  and  securities. 

(c)  Sinking-funds. 

2.  Capital  liabilities. 

Stocks  and  bonds  (income,  debenture  and  mortgage  bonds). 

3.  Current  assets. 

(a)  Cash  on  hand. 

(b)  Loans  and  bills  receivable. 

(c)  Amounts  receivable. 

(d)  Due  from  other  companies  and  individuals. 

(e)  Due  from  the  company's  agents  and  officers. 
(/)  Advances  to  other  companies. 

(^)  Sundry  assets. 

4.  Current  liabilities  (operating  liabilities  and  floating  debt). 

(a)  Loans  and  bills  payable. 

(b)  Accounts  payable. 


RAILWAY  ACCOUNTS  AND  STATISTICS 


199 


(c)  Pay-rolls  and  vouchers. 

(d)  Interest  and  dividends  accrued. 

(e)  Due  to  other  companies  (traffic  balances). 
(/)  Sundry  liabilities. 

III.  Physical  statistics. 

1.  Length  and  characteristics  of  road  (track,  bridges,  and  struc- 
tures). 

3.  Number  and  description  of  equipment. 

3.  Volume  and  character  of  business  done  (in  the  freight,  pas- 
senger, and  other  branches  of  the  service). 

The  revenue  account  is  frequently  presented  under 
the  two  headings  of  income  account  and  profit  and  loss 
account.  The  bookkeeping  form  of  these  two  accounts 
and  of  the  general  balance-sheet  is  given  as  follows  in 
Mr.  H.  C.  Whitehead's  pamphlet  on  the  Railway  Auditor: 


Income 
Dr. 

Operating  expenses : 
Maintenance  of  way  and  struc- 
tures 
Maintenance  of  equipment 
Transportation  and  traffic 
General  expenses 
Taxes 

Rental  of  tracks  and  terminals 
Interest  on  bonds 
Balance,  being  net  income  for  the 
year  carried  to  profit  and  loss 
account 
Total 

Profit  and 

Dr. 

Dividend  No. 

Amount  written  off  by  vote  of  di- 
rectors for 
Sundry  adjustments 
Balance  carried  down 
Total 


Account 

Cr. 
Earnings ; 

Passenger 

Freight 

Mail,  express,  and  miscellaneous 
Interest  and  discount 
Income  from  investments 


Total 
Loss  Account 

Balance    brought    forward    from 

previous  year 
Net  income  for  year 


Total 
Balance  (surplus)  carried  to  gen- 
eral balance-sheet 


200  AMERICAN  RAILWAY  TRANSPORTATION 

General  Balance- Sheet 

Dr.  Assets.  Cr.  Liabilities. 

Railroad     franchises     and     other     Capital  stock 
property  Funded  debt 

Expenditures  for  construction  and     Replacement  and  renewal  reserves 
equipment  during  current  fis-     Accrued  taxes 
cal  year :  Interest  on  funded  debt 

Improvements  Accounts  payable 

Extensions 
Equipment 
Otlier  capital  asset  accounts 
Securities  in  treasury 
Material  and  supplies 
Accounts  receivable 
Other  current  asset  accounts 

Cash  on  hand  and  in  bank  Profit  and  loss :  Surplus 

Total  Total 

A  part  of  the  annual  railroad  report  is  usually  devoted 
to  an  explanation  and  discussion  by  the  president  of  the 
important  changes  during  the  year  covered  by  the  report 
as  regards  traffic  and  earnings,  construction,  improve- 
ments in  track,  structures  and  equipment,  the  stocks, 
bonds,  dividends  and  securities  of  the  company,  the  rela- 
tion of  the  corporation  to  other  companies,  and  such  other 
subjects  as  are  of  special  interest  to  the  holders  of  the 
stocks  and  bonds. 

The  above  tables  should  be  used  as  an  aid  to  the  study 
of  an  annual  report  of  some  large  railroad  corporation.^ 
If  the  report  is  a  detailed,  comprehensive,  and  systematic 
one,  it  will  cover  all  the  points  contained  in  the  tables; 
but  there  are  many  companies  whose  reports  are  incom- 
plete,  especially  as  regards  the  information  concerning 

^  In  studying  a  railroad  report — and  that  is  the  only  satisfactory  text 
for  the  study  of  railroad  accounts — the  stndent  will  be  assisted  by  the 
analysis  contained  in  Mr.  Woodlock's  little  book  The  Anatomy  of  a 
Railroad  Report.  Chapter  VI  of  Corporation  Finance,  by  Thomas  L. 
Crreene,  will  also  be  helpful, 


RAILWAY  ACCOUNTS  AND  STATISTICS  201 

the  physical  condition  of  the  property.  The  object  of 
some  reports  is  to  make  the  best  possible  showing  for  the 
company  rather  than  to  give  the  most  accurate  and  lucid 
account  possible,  but  such  reports  upon  critical  examina- 
tion will  be  seen  to  be  incomplete. 

As  the  public  nature  of  the  service  of  transportation 
becomes  more  clearly  recognized  and  the  difference  be- 
tween the  duties  of  the  quasi-public  railway  corporation 
and  those  of  the  strictly  private  corporation  is  being 
brought  into  greater  prominence  by  the  rapid  growth  in 
the  size  of  the  railroad  systems  and  in  the  increasing 
tendency  for  the  traffic  of  large  sections  of  the  country 
to  pass  under  the  control  of  a  single  management,  the 
demand  for  accuracy,  completeness,  and  uniformity  in 
railway  accounts  becomes  stronger  and  more  general. 
Public  opinion  does  not  justify  a  railroad  corporation  in 
making  an  inaccurate  or  otherwise  misleading  report  for 
speculative  purposes,  and  a  company  probably  does  itself 
more  harm  than  good  by  putting  out  an  inaccurate  report. 

The  demand  for  uniformity  in  the  accounts  of  all 
railroads  is  not  so  definite  as  is  the  sentiment  for  accu- 
racy, but  the  reasons  are  hardly  less  cogent.  If  all  rail- 
road reports  were  accurate,  complete,  and  uniform,  the 
directors  and  officials  of  each  company  would  be  able  to 
compare  the  results  of  their  administrative  policies  with 
the  results  of  those  enforced  by  other  companies.  There 
is  no  stimulus  to  improvement  equal  to  that  which  comes 
from  comparison  with  others  in  the  same  calling  or  busi- 
ness. The  investor,  moreover,  would  be  able  to  act  more 
intelligently  if  he  were  able,  either  personally  or  by  the 
aid  of  an  expert  accountant,  to  judge  of  the  merits  and 
business  efficiency  of  particular  railroads  with  whose 
management  he  may  not  be  familiar  by  contrasting  its 
accounts  with  others  whose  affairs  he  may  have  intimate 
knowledge  of  or  whose  management  is  generally  recog- 


202  AMERICAN  RAILWAY  TRANSPORTATION 

iiized  to  be  sound  and  conservative.  Likewise  from  the 
standpoint  of  public  supervision  of  railroads,  uniform 
accounting  is  highly  desirable.  The  chief  purpose  of 
Government  oversight  of  transportation  is  to  insure  equity 
in  charges,  and  the  accounts  kept  by  each  company  con- 
tain most  of  the  information  upon  v^^hich  a  decision 
regarding  the  reasonableness  of  its  charges  must  be  based. 
Moreover,  a  charge  by  one  company  is  frequently  ren- 
dered equitable  or  inequitable  by  its  relation  to  the 
charges  exacted  by  other  companies,  and  whatever  facili- 
tates accurate  comparisons  of  the  accounts  of  one  com- 
pany with  those  of  other  companies  is  an  aid  to  the  intel- 
ligent and  effective  supervision  of  railway  management. 

Although  the  American  railroad  corporations  have  by 
no  means  made  their  accounts  uniform,  the  differences 
in  their  methods  of  recording  and  reporting  are  much 
fewer  than  they  formerly  were,  largely  because  of  the 
influences  exerted  by  the  Association  of  American  Rail- 
way Accountfng  Officers,  the  Interstate  Commerce  Com- 
mission, and  the  Annual  Convention  of  the  E'ational 
Association  of  the  Railway  Commissioners  of  the  States. 
The  fact  that  the  railroad  companies  are  obliged  by  law 
to  make  detailed  and  elaborate  reports  to  the  Interstate 
Commerce  Commission  annually  and  according  to  a  form 
prescribed  by  the  commission  has  caused  the  companies 
to  shape  their  accounts  and  reports  according  to  the  sta- 
tistical requirements  of  the  commission.  The  statistician 
to  the  Interstate  Commerce  Commission  worked  out  the 
blanks  to  be  filled  in  annually  by  the  railroad  in  con- 
sultation with  the  accounting  officers  of  the  companies, 
and  those  conferences  as  .well  as  the  requirements  of  the 
commission  have  promoted  the  adoption  of  uniform  meth- 
ods. Both  the  Interstate  Commerce  Commission  and  the 
Association  of  American  Railway  Accounting  Officers 
are  represented  in  the  Annual  Convention  of  State  Rail- 


RAILWAY  ACCOUNTS  AND  STATISTICS  203 

road  Commissioners,  the  statistician  to  the  Interstate 
Commerce  Commission  and  the  President  of  the  Ac- 
countants' Association  being  members  of  the  Standing 
Committee  on  Railroad  Statistics. 

The  State  commissioners  require  annual  statistical 
reports  from  the  railroads  covering  the  mileage  and  busi- 
ness done  within  their  respective  States,  and  the  Annual 
Convention  of  the  Commissioners  has  done  much  to  give 
similarity  if  not  complete  uniformity  to  their  annual 
reports,  and  thus  to  exercise  some  influence  upon  the 
railroad  companies  to  adopt  uniform  methods  of  keeping 
their  accounts. 

Uniformity  in  railroad  accounting  would  be  greatly 
promoted,  and  probably  made  obligatory,  if  Congress 
were  to  pass  a  law  providing  for  the  Government  super- 
vision and  auditing  of  railroad  accounts.  Up  to  the  pres- 
ent time  Congress  has  not  adopted  that  form  of  Govern- 
ment supervision,  and  it  would  doubtless  be  opposed  by 
many  railroad  companies.  There  is,  however,  a  precedent 
for  the  public  inspection  of  railroad  accounts  in  the  ex- 
amination and  auditing  of  the  books  of  the  national 
banks,  and  whether  the  Government  should  or  should  not 
exercise  this  authority  with  reference  to  the  affairs  of 
the  railway  is  more  a  matter  of  expediency  than  of 
principle. 

The  investigations  of  the  Industrial  Commission  con- 
vinced that  body  of  the  desirability  of  Government  audit- 
ing of  railway  accounts,  and  it  recommended  to  Congress 
the  establishment  of  a  permanent  corps  of  expert  auditors 
who  shall  have  authority,  under  the  supervision  of  the 
Interstate  Commerce  Commission,  to  examine  period- 
ically the  accounts  of  all  railroad  companies,  whether 
operating  or  financial  in  their  character.  Provisions  for 
securing  publicity  in  respect  of  financial  and  operating 
facts  should  be  made.     Such  examinations  for  detection 


204  AMERICAN  RAILWAY  TRANSPORTATION 

of  violations  of  law  or  for  statistical  returns  should  be 
subject  to  provisions  safeguarding  confidential  informa- 
tion similar  to  those  which  now  prevail  in  the  case  of  the 
inspection  of  national  banks. 

By  Section  20  of  the  act  of  February  4,  1887,  "  to 
regulate  commerce/'  the  Interstate  Commerce  Commis- 
sion is  given  discretionary  power  of  prescribing  for  all 
interstate  railways  "  a  uniform  system  of  accounts  and 
the  manner  in  which  such  accounts  shall  be  kept/'  but 
the  law  does  not  give  the  commission  definite  authority 
to  inspect  and  audit  the  accounts,  and  in  its  present  form 
the  law  could  hardly  be  enforced.  The  Interstate  Com- 
mission has  never  attempted  to  force  the  railroacJs  to 
adopt  a  uniform  system  of  accounts.  The  statistician  to 
the  commission.  Prof.  Henry  C.  Adams,  thinks  that  Con- 
gress should  create  and  place  under  the  administration  of 
the  commission  "  a  bureau  of  statistics  and  accounts,  and 
establish  something  of  the  relation  between  that  bureau 
and  the  railways  that  now  exist  between  the  Comptroller 
of  the  Currency's  office  and  the  banks." 

Those  who  are  opposed  to  extending  the  regulative 
authority  of  the  Government  over  the  management  of 
railroads  do  not  favor  a  law  requiring  the  adoption  of  a 
uniform  system  of  accounts.  In  order  to  make  such  a 
law  effective,  provision  would  need  to  be  made  for  an 
inspection  of  the  accounts  by  public  officials,  and  that 
would  be  of  great  assistance  to  the  national  and  State 
commissioners  in  performing  the  duties  imposed  upon 
them. 

Railroad  Statistics 

The  statistics  compiled  in  regard  to  railroads  are 
detailed  and  voluminous,  and  necessarily  so.  Each  com- 
pany depends  upon  its  statistical  records  and  data  for  the 
information  essential  to  the  administration  of  its  several 


RAILWAY   ACCOUNTS  AND  STATISTICS  205 

departments;  the  National  and  State  governments  must 
be  well  informed  concerning  the  railroads  in  order  to  legis- 
late intelligently  regarding  public  supervision  and  to  en- 
force wisely  the  laws  affecting  the  railways. 

There  are  five  general  sources  (besides  many  minor 
sources)  whence  one  may  secure  statistical  information 
regarding  railroads.  The  annual  reports  of  the  compa- 
nies give  the  data  for  each  company  separately.  These 
reports  are  annually  published,  in  an  abbreviated  form, 
in  Poor's  Manual  of  Kailroads,  which  excellent  volume 
also  contains  an  analytical  summary  aggregating  the  sta- 
tistics for  all  the  roads  in  the  United  States,  and  making 
comparisons  with  the  figures  for  past  years.  Most  of 
the  States  and  Territories  annually  collect  and  publish 
statistics  covering  the  roads  within  their  respective  bound- 
aries; but  while  these  local  compilations  are  of  value  to 
the  States  and  Territories  in  levying  taxes  and  regulating 
transportation,  they  are  not  much  consulted  by  the  pub- 
lic generally,  because  the  comprehensive  statistics  to  be 
found  in  Poor's  Manual  and  in  the  publication  of  the 
National  Government  are  more  satisfactory  for  reference. 

The  national  censuses  of  1880  and  18^0  covered  the 
statistics  of  railroads  and  other  transportation  agencies, 
but  the  census  of  1900  did  not  include  the  data  regard- 
ing steam-railroads.  This  omission  was  made  because  it 
was  thought  that  the  compilation  of  census  statistics  of 
railroads  could  do  little  more  than  duplicate  the  statis- 
tical work  of  the  Interstate  Commerce  Commission.  If 
there  were  to  be  no  decennial  volume  to  show  the  rail- 
road progress  from  1890  to  1900,  it  would  be  unfortu- 
nate; but  the  Interstate  Commerce  Commission  has  pre- 
pared such  a  volume  under  the  title  of  the  Review  of  Rail- 
way Operations  and  Regulation  in  the  United  States. 

The  annual  volume  published  by  the  Interstate  Com- 
merce Commission,  entitled  Statistics  of  Railways  in  the 


206  AMERICAN  RAILWAY  TRANSPORTATION 

United  States,  contains  six  lengthy  tables  showing  for 
each  road  in  the  United  States,  and  for  all  the  roads  in 
the  aggregate,  the  mileage,  capital,  earnings  and  income, 
general  expenditure,  charges  against  income,  and  a  gen- 
eral balance-sheet  for  the  year  with  comparisons  with  the 
previous  year.  The  elaborate  tables  are  preceded  by  an 
analytical  report  of  the  statistician  to  the  commission,  in 
which  are  contained,  together  with  the  explanatory  text, 
condensed  tabulations  summarizing  the  large  tables.  In 
this  introductory  report  by  the  statistician  may  usually 
be  found  all  the  figures  desired  by  the  general  student  of 
railroad  transportation. 

Although  the  present  statistics  of  transportation  seem 
comprehensive,  there  are  some  regrettable  omissions  of  de- 
sirable and  valuable  data.  The  most  serious  defect  is  the 
neglect  to  collect  annual  statistics  of  the  business  done  by 
carriers  by  water,  by  express  companies,  by  telegraph  com- 
panies, and  by  corporations  other  than  railroads  owning 
rolling-stock  engaged  in  interstate  commerce.  In  addition 
to  collecting  the  statistics  concerning  railroads,  the  Inter- 
state Commerce  Commission  should  have  the  power  and 
duty  of  gathering  and  publishing  the  statistics  of  inland 
navigation.  As  the  statistician  to  the  commission  says  in 
his  report  for  1900,  "  the  jurisdiction  of  the  commission 
must  be  extended  to  these  agencies  of  transportation,  so 
far  at  least  as  annual  reports  are  concerned,  before  it  is 
possible  to  render  a  comprehensive  report  upon  interstate 
traffic."  In  order  for  Congress  to  act  intelligently '  in 
making  appropriations  for  rivers  and  harbors,  in  regula- 
ting or  not  regulating  the  business  of  express  and  tele- 
graph companies,  annual  statistical  compilations  are  indis- 
pensable. In  some  measure  the  need  for  information  has 
been  supplied  by  the  decennial  censuses,  but  only  very 
partially  supplied,  not  only  because  of  the  infrequency  of 
the   census   compilations,   but   more   because    the    census 


RAILWAY  ACCOUNTS  AND  STATISTICS  207 

statistics  are  unavoidably  defective  and  inaccurate.  Sys- 
tematic records  and  frequent  reports  on  the  part  of  car- 
riers are  the  only  basis  for  accurate  Government  statistics, 
and  it  will  not  be  possible  for  the  Government  to  secure 
full  and  reliable  statistics  of  interstate  transportation 
until  it  requires  all  carriers  engaged  in  that  transporta- 
tion to  keep  faithful  records  and  make  regular  reports. 

The  statistics  of  railroad  capital  as  now  published  are 
not  altogether  satisfactory,  because  only  the  nominal  or 
face  values  of  the  stocks  and  bonds  are  given.  As  was 
explained  in  the  chapter  on  Capitalization,  there  is  fre- 
quently a  wide  discrepancy  between  real  and  face  values 
of  railroad  securities.  The  capitalization  statistics  we 
now  have  do  not  inform  us  how  much  has  been  spent  on 
the  construction  of  the  roads  nor  the  amounts  contributed 
therefor  by  individuals  and  by  the  IN'ational,  State,  and 
local  governments,  nor  the  present  value  of  the  railroadsJ 
It  would  be  impossible  now  to  secure  the  data  necessary 
to  make  up  these  deficiencies,  but  something  might  be 
done  year  by  year  to  give  greater  value  in  the  future  to 
the  statistics  of  capitalization.  The  false  impression  now 
given  by  the  figures  for  total  capital  (face  value  of  stocks 
and  securities)  might  be  corrected  to  some  extent  at 
least  by  a  table  showing  in  parallel  columns  the  market 
value  and  par  value  of  such  securities  as  are  listed  in 
the  market.^  The  English  reports  have  a  feature  worth 
copying.  They  show,  year  by  year,  the  increase  in  capi- 
tal account  that  is  real  and  the  increase  that  is  nominal 

^  In  response  to  a  resolution  of  the  United  States  Senate,  as  was 
stated  above  in  Chapter  VII,  the  Interstate  Commerce  Commission 
made  a  report,  February  24,  1908,  comparing  the  par  and  market  val- 
ues of  railroad  securities  for  the  year  ending  June  30,  1900.  The  report 
presents  clearly  the  difficulties  encountered  in  securing,  even  with  only 
approximate  accuracy,  the  market  value  of  all  the  securities  of  Amer^ 
ican  railroads.  Although  the  report  does  not  cover  all  securities,  the 
data  contained  are  instructive.  9 


208  AMERICAN  RAILWAY  TRANSPORTATION 

or  due  to  conversions  and  consolidations.  These  two 
changes  in  the  present  statistical  tables  would  give  the 
public  a  better  measure  than  it  now  has  of  the  actual 
value  of  railway  property,  and  would  indicate  more  defi- 
nitely the  amount  of  capital  being  invested  in  such 
property. 

The  value  of  freight  trafiic  statistics  would  be  en- 
hanced by  giving  separately  the  figures  for  intrastate 
and  interstate  traffic.  Such  a  classification  would  be  serv- 
iceable in  connection  with  questions  of  taxation  and  State 
control.  The  railroad  companies  have  nothing  to  gain 
by  making  the  classification  into  State  and  interstate  busi- 
ness, and,  as  it  would  involve  some  expense  to  them,  they 
naturally  would  not  favor  going  to  the  necessary  labor 
and  cost.  It  would,  however,  be  comparatively  easy  for 
the  companies  to  compile  the  statistics  on  this  basis  from 
the  way-bills. 

Statistics  of  the  ton  mileage  of  each  of  the  leading 
commodities  shipped  by  rail  would  be  instructive  both 
to  the  public  and  to  the  companies,  but  until  less  ex- 
pensive methods  of  railway  auditing  have  come  into 
general  use  commodity  ton-mileage  statistics  would 
involve  more  labor  and  expense  than  the  Government 
would  be  justified  in  requiring  the  railroad  companies 
to  expend.  The  publication  of  such  statistics  year  by 
year  would  show  the  localization  of  industries  in  various 
parts  of  the  country,  indicate  the  trend  of  traffic  from  one 
kind  of  commodity  to  another,  and  show  the  companies 
what  kinds  of  traffic  were  developing  slowly  and  what 
rapidly.  Such  information  would  assist  the  companies 
in  their  efforts  to  promote  traffic,  and  would  furnish  the 
Government  with  data  bearing  upon  the  reasonableness 
of  rates.  It  is  not  improbable  that  electrical  computing 
and  tabulating  machines  may  so  reduce  the  expense  of 
statistical  work  in  the  ^ear  future  as  to  enable  the  rail- 


RAILWAY  ACCOUNTS  AND  STATISTICS  209 

road  companies,  without  seriously  burdening  themselves 
thereby,  to  enlarge  very  considerably  the  present  scope 
of  railway  statistics. 

A  department  of  commerce  having  been  established, 
with  a  Cabinet  officer  at  its  head,  it  is  probable  that  the 
collection  and  compilation  of  the  statistics  of  transporta- 
tion and  commerce  may  be  somewhat  enlarged  and  sys- 
tematized. The  statistics  of  ocean  trade,  which  are  now 
confined  to  our  international  commerce,  will,  it  is  to  be 
hoped,  be  made  to  include  our  coastwise  maritime  com- 
merce. Statistics  of  inland  navigation  and  of  the  express 
and  telegraph  businesses  should  be  compiled  either  by  the 
Department  of  Commerce  or  by  the  Interstate  Commerce 
Commission.  It  would  probably  be  best  to  place  the  work 
of  securing  statistics  of  express  business  and  of  inland 
carriers  by  water  in  the  hands  of  the  Interstate  Com- 
merce Commission,  because  it  is  probable  that  by  so 
doing  the  published  statistics  of  interstate  traffic  as  a 
whole  would  be  more  systematic,  more  comprehensive, 
and  better  correlated  than  they  would  be  if  their  collec- 
tion was  put  in  charge  of  two  independent  authorities. 
« 

REFERENCES    FOR    FURTHER   READING 

WooDLOCK,  T.  F.  The  Anatomy  of  a  Railroad  Report  and  Ton-Mile 
Cost.  Rev.  ed.  [This  little  book  should  be  read  in  connection 
with  the  above  chapter.] 

Greene,  T.  L.     Corporation  Finance,  chap,  vi,  1897. 

Johnson,  E.  R.,  and  Weyl,  W.  E.  The  Statistics  of  Transportation. 
Publication  of  the  American  Economic  Association.  New  Series, 
No.  2,  pp.  246-256,  March,  1899.  [This  is  one  of  the  papers  in 
a  volume  on  the  Federal  Census.] 

Poor,  H.  V.     Manual  of  Railroads  of  the  United  States. 

Statistics  of  Railways  in  the  United  States.  Annual  Report  of  Inter- 
state Commerce  Commission. 

Eaton,  J.  S.     Railroad  Operations  and  How  to  Know  Them.     1900. 

Keister,  D.  a.  Corporation  Accounting  and  jiuditing,  fifth  ed., 
1897.  [This  book  is  a  "treatise  on  higher  accounting  designed 
15 


^10  AMERICAN  RAILWAY  TRANSPORTATION 

for  the  use  of  accountants,  auditors,  bookkeepers,  financial  ex- 
perts," etc.,  and  will  especially  interest  those  who  wish  to  make 
a  special  study  of  accounting.] 

Whitehead,  H.  C.  The  Railway  Auditor:  An  Outline  of  the  Sys- 
tem of  Railway  Accounting.  A  pamphlet  of  42  pages,  published 
by  the  New  York  University  School  of  Commerce,  Accounts,  and 
Finance,  Washington  Square,  New  York,  1902. 

Senate  Document  178,  Fifty-seventh  Congress,  Second  Session.  [Re- 
port made,  February  24,  1903,  to  the  Senate  by  the  Interstate 
Commerce  Commission  comparing  the  par  and  market  value  of 
railroad  securities  for  the  year  ending  June  30,  1900.] 


PART   III 
THE  RAILWAYS  AND  THE   PUBLIC 


CHAPTER   XV 

INTEREAILWAY    RELATIONS 

I.  Railway  Competition  and  Agreements  to  maintain  Rates 

Railroad  corporations  are  creatures  of  the  state, 
instituted  to  serve  the  public  for  the  state  and  under  its 
supervision.  The  service  performed  by  the  railroads  has 
two  characteristics  of  special  significance:  (1)  It  is  of  a 
public  nature,  and  may  be  performed  directly  by  the 
government  or  by  means  of  an  agent  authorized  by  the 
state.  Whether  this  service  shall  be  conducted  by  the 
government  or  by  its  creatures  is  a  question  of  expe- 
diency which  is  decided  differently  in  different  coun- 
tries; but  in  whichever  way  this  question  may  be  deter- 
mined, the  service  as  a  whole,  and  in  its  several  branches, 
has  close  relationship  with  the  government.  (2)  Within 
each  part  of  the  service — railroad  transportation,  the 
mail  service,  the  express  business,  etc. — there  must  be 
unity  of  action  extending  over  wide  areas.  The  several 
transportation  agencies  within  a  nation's  territory  must 
work  together  if  the  public  is  well  served;  indeed,  an 
international  cooperation  of  carriers  has  been  found  ad- 
vantageous. If  the  government  directly  conducts  each 
branch  of  the  service,  unity  of  action  within  its  boundaries 
is  assured,  and  the  question  of  cooperation  becomes  one 
of  securing  the  proper  international  relations;  but  if 
the  state  delegates  a  branch  of  the  service,  as,  for  in- 
stance, railroad  transportation,  to  a  number  of  corpora- 

213 


5^14  AMERICAN  RAILWAY  TRANSPORTATION 

tions,  a  large  measure  of  cooperation  among  those  compa- 
nies is  necessary. 

The  railroad  service  within  the  United  States  being 
performed  by  numerous  corporations,  these  several  organ- 
izations are  brought  into  relationship  with  each  other  in 
two  ways:  as  cooperators  and  as  competitors.  They  are 
cooperators  because  a  part  at  least  of  the  persons  and 
things  each  company  transports  moves  over  a  wider  ter- 
ritory than  is  served  by  the  company's  system  of  lines. 
All  companies  have  more  or  less  "  through  traffic  " — 
that  which  it  receives  from  another  railroad  or  turns 
over  to  another  connecting  line.  American  railroads  are 
rivals  because  in  most  sections  of  the  country  much  of 
the  traffic  has  the  choice  of  more  than  one  route.  The 
territorial  grouping  of  systems  described  in  the  chapter 
on  the  present  Railroad  System  of  the  United  States  has 
not  yet  been  completely  worked  out;  and  if  it  were  fully 
accomplished,  there  would  be  much  traffic  inbound  and 
outbound  between  the  interior  and  seaboard  of  the  coun- 
try that  could  choose  between  the  ports  of  two  or  more 
sections.  The  east-bound  traffic  from  the  Mississippi  Val- 
ley, for  instance,  can  leave  by  way  of  the  Gulf,  the 
southern  Atlantic,  the  middle  Atlantic,  the  'New  England, 
or  the  St.  Lawrence  ports.  Likewise  the  west-bound 
traffic  from  the  middle  section  of  the  United  States  has 
the  option  of  many  routes.  The  nature  and  scope  of 
interrailway  competition  will  be  discussed  more  fully  in 
a  later  connection.  It  assumes  many  forms,  some  of 
which  are  less  obvious  than  those  just  cited. 

Such  being  the  conditions  under  which  the  railroad 
companies  perform  their  transportation  services,  an  under- 
standing of  interrailway  arrangements  is  requisite  to  a 
clear  knowledge  of  the  relations,  actual  and  ideal,  of  the 
railroads  to  the  public  they  serve,  and  to  the  Government 
from  which  they  receive  their  authority  to   engage  in 


COMPETITION  AND  RATE  AGREEMENTS  215 

the  business  of  public  carriage,  and  to  which  they  are 
accountable  for  a  proper  performance  of  the  service  they 
have  undertaken  to  render. 

The  extensive  railroad  systems  of  the  present  time  are 
of  comparatively  recent  growth.  During  the  first  two 
decades  of  railway  history  the  lines  controlled  by  even 
the  larger  companies  were  short,  a  road  200  miles  in 
length  being  considered  a  long  one.  It  was  not  until 
after  1850  that  a  length  of  500  miles  was  reached  by 
any  system.  The  Illinois  Central,  constructed  in  the 
fifties  to  a  length  of  700  miles,  was  one  of  the  longest 
roads  in  the  world.  The  Pennsylvania,  by  construction 
and  purchase,  and  the  ]^ew  York  Central  by  consolida- 
tion, passed  the  500-mile  limit  in  the  fifties;  but  it  was 
not  until  after  the  civil  war  that  a  length  exceeding  1,000 
miles  was  attained  by  any  system.  Before  1890  a  maxi- 
mum of  5,000  had  been  reached,  and  since  then  the 
process  of  consolidation  has  given  each  of  several  com- 
panies the  ownership  or  control  of  more  than  10,000 
miles  of  road. 

Interrailway  arrangements  for  handling  through  pas- 
senger or  freight  trafiic  were  but  little  developed  during 
the  first  twenty-five  years  of  railway  construction.  Each 
company,  as  far  as  possible,  kept  its  rolling-stock  on  its 
own  lines,  and  compelled  passengers  to  change  and 
freight  to  be  transferred  when  the  points  of  junction  with 
other  roads  were  reached.  A  traveler  may  now  go  from 
the  Atlantic  seaboard  to  St.  Louis  or  even  to  San  Fran- 
cisco without  change  of  cars,  but  as  late  as  in  the  fifties 
he  had  to  make  seven  changes  in  getting  from  the  At- 
lantic to  the  Mississippi.  The  conditions  under  which  the 
through  freight  and  passenger  traffic  was  conducted  be- 
fore interrailway  facilities  were  developed  are  described 
in  a  statement  made  many  years  since  by  the  secretary 
of  the  New  York  Central.     Speaking  with  reference  to 


216  AMERICAN  RAILWAY  TRANSPORTATION 

the  situation  before  1851  on  the  roads  now  composing  the 
!N^ew  York  Central  route,  he  said: 

"  We  had  the  roads  between  Albany  and  Buffalo. 
There  was  just  about  as  much  efficiency  in  operating  ten 
roads  as  there  would  be  in  ten  men  trying  to  do  a  thing 
that  one  ought  to  do.  Every  board  of  directors  had  its 
own  profit  to  make  and  its  own  schemes  to  advance. 
There  was  no  obligation  on  the  part  of  any  one  company 
to  do  anything  for  any  other.  Through  lines  of  cars 
could  be  run  only  by  very  complicated  and  embarrassing 
arrangements.  I  can  remember  the  time  when  conduc- 
tors were  changed  at  the  end  of  each  one  of  the  roads 
of  the  old  line  between  Buffalo  and  Albany.  In  some 
cases  a  ticket  could  not  be  bought  through  from  Albany 
to  Buffalo.  The  elements  of  usefulness  and  economy 
were  very  few.  In  regard  to  freight,  there  was  no  obli- 
gation on  the  part  of  any  one  of  the  roads  to  take  a  single 
pound  of  it  from  another.  Except  so  far  as  they  might 
agree  with  each  other,  it  involved  changing  at  each  ter- 
minus." ^ 

Frequent  transfers  were  a  deterrent  to  travel  and  a 
much  more  serious  hindrance  to  freight  traffic.  The 
handling  of  freight  several  times  en  route  consumed  time, 
increased  the  liability  of  damage  in  transit,  and  made  the 
costs  of  transportation  so  high  as  to  restrict  long-distance 
sliipments  mainly  to  nonperishable  commodities  of  rela- 
tively high  value.  These  obstacles  to  travel  and  freight 
traffic  were  removed  in  part  by  the  consolidation  of  the 
short  connecting  lines,  and  to  a  greater  extent  by  means 
of  the  express  companies,  "  fast  freight  lines,"  and  "  pal- 
ace-car "  companies  that  have  already  been  described. 
The  amalgamation  of  the  short  lines  began  in  a  small 
way  in  the  first  decade  of  railway  development,  but  was 

1  Windom  Report  of  1874,  Evidence,  p.  157.     Senate  Report  307, 
First  Session,  Forty-third  Congress. 


COMPETITION  AND  RATE  AGREEMENTS  217 

not  actively  carried  on  until  after  1850,  or  during  tlie 
third  and  subsequent  decades  of  the  growth  of  American 
railways.  The  express  companies  date  from  the  forties, 
the  fast  freight  lines,  or  freight  despatch  companies,  from 
the  fifties,  and  the  sleeping-,  dining-,  and  parlor-car  com- 
panies from  the  sixties.  These  companies  were  all  sepa- 
rate from  the  railroad  companies  at  the  beginning,  and  the 
express  and  "  palace-car  "  companies  have  remained  inde- 
pendent, but  the  freight  despatch  companies,  as  has  been 
noted,  have  with  few  exceptions  become  the  cooperative 
fast  freight  lines,  which  are  in  reality  a  part  of  the  freight- 
traffic  departments  of  the  railroad  companies. 

These  facilities  for  handling  through  or  joint  traffic 
established  a  greater  degree  of  cooperation  among  con- 
necting carriers  and  enhanced  the  ability  of  rival  lines  to 
compete  for  business  free  to  move  over  more  than  one 
route.  Indeed,  the  consolidation  and  cooperation  of  con- 
necting roads  so  intensified  competition  as  to  give  to  the 
interrailway  relations  for  the  promotion  or  restriction 
of  competition  far  greater  prominence  than  those  have 
which  are  concerned  with  arrangements  for  joint  traffic. 

The  construction  and  consolidation  of  railroads  in  the 
fifties  by  which  trunk  lines  several  hundred  miles  in 
length  were  established  increased  the  competition  among 
carriers,  especially  for  the  traffic  between  the  central 
West  and  the  Atlantic  seaboard.  In  the  early  fifties  four 
lines — the  New  York  Central,  the  Erie,  the  Pennsylvania, 
and  the  Baltimore  and  Ohio — were  bidding  for  Western 
business,  the  two  former  lines  connecting  the  seaboard 
with  Lake  Erie,  the  latter  two  the  seaboard  with  the 
Ohio  Kiver,  and  the  intensity  of  this  competition  soon 
became  a  matter  of  concern  to  the  companies.  They 
were  able,  however,  to  keep  their  rivalry  under  fair  con- 
trol until  about  1870. 

The  five  years  preceding  the  panic  of  1873  were  char- 


218  AMERICAN  RAILWAY  TRANSPORTATION 

acterized  bj  great  activity  and  much  speculation  in  busi- 
ness, and  this  activity  was  especially  manifest  in  railroad 
construction.  'New  lines  were  projected  both  into  new 
sections  and  into  territory  served  by  roads  previously 
built.  Some  roads  were  constructed  for  the  speculative 
purpose  of  being  sold  out  by  their  builders  to  the  old 
companies  whose  traffic  was  threatened.  Although  the 
subsequent  development  of  the  country  has  been  such  as 
to  create  a  need  for  most  of  the  roads  built  during  this 
period  and  during  the  later  periods  of  active  railroad  con- 
struction, the  speculation  in  railroads  that  preceded  the 
panic  of  1873  was  excessive  and  was  one  cause  of  the 
intense  rivalry  of  the  railways  during  the  succeeding 
twenty  years. 

The  contest  was  keenest  among  the  railroads  connect- 
ing the  Mississippi  Valley  with  the  Atlantic.  In  1869 
the  New  York  Central  and  the  Pennsylvania  secured  con- 
trol of  the  roads  connecting  their  Western  termini — Buf- 
falo and  Pittsburg — with  Chicago,  and  a  struggle  at  once 
ensued  for  the  possession  of  the  east-bound  and  west-bound 
traffic  between  Chicago  and  the  seaboard.  In  1868  the 
rates  from  Chicago  to  ^ew  York  were  $1.88  per  hundred 
pounds,  first-class,  and  82  cents  fourth-class;  but  in  1869 
a  "  rate  war  "  carried  the  rates  for  a  time  to  25  cents  a 
hundred  for  all  classes.  Such  a  low  rate  as  that  could 
not  long  be  maintained  without  bankrupting  the  roads, 
and  the  charges  were  raised  to  a  profitable  basis  within 
a  few  months.  But  the  published  rates  on  the  through 
traffic  were  seldom  the  ones  actually  charged  for  any 
length  of  time.  Rates  fluctuated  greatly  and  were 
secretly  reduced  for  individual  shippers  whenever  such 
action  was  thought  to  be  necessary  to  prevent  traffic  from 
going  by  a  rival  route. 

The  situation  in  the  territory  of  the  "  trunk  lines  " 
was  made  still  more  unsettled  and  uncontrollable  in  1874 


COMPETITION  AND  RATE  AGREEMENTS  219 

bj  the  extension  of  the  Baltimore  and  Ohio  to  Chicago, 
and  the  opening  of  the  Grand  Trunk  route  from  Mil' 
waukee  via  Detroit  and  Montreal  to  Boston.  The  New 
York  Central  and  the  Pennsylvania  tried  to  maintain 
rates,  but  the  Grand  Trunk,  the  Erie,  and  the  Baltimore 
and  Ohio  each  preferred  to  act  independently.  As  soon 
as  the  Baltimore  and  Ohio  reached  Chicago  it  began  by 
open  and  secret  methods  to  divert  traffic  from  the  Penn- 
sylvania lines.  The  Grand  Trunk  and  the  Erie,  whose 
financial  management  was  highly  speculative,  charged 
whatever  rates  the  exigencies  of  competition  suggested. 
By  the  latter  part  of  1875  the  through  rates  on  all  the 
trunk  lines  were  well-nigh  demoralized.  In  December 
of  that  year  a  truce  was  agreed  upon,  but  it  proved  but 
temporary.  For  eight  months  of  1876  a  violent  rate  war 
prevailed,  and  the  rates  charged  were  often  not  sufficient 
to  cover  the  costs  of  operating  the  trains.  By  the  end 
of  the  year  the  finances  of  the  roads  had  been  so  depleted 
that  peace  was  a  necessity,  and  in  1877  they  succeeded  in 
reaching  an  agreement  to  share  the  total  through  traffic 
according  to  stipulated  percentages. 

The  north  Atlantic  ports  reached  by  the  trunk  lines — 
Baltimore,  Philadelphia,  New  York,  and  Boston — pros- 
pered or  declined  commercially  according  to  the  amount 
of  traffic  secured  by  the  railroad  of  which  the  city  was 
the  terminus,  and  so  the  contest  between  the  railroads  was 
intensified  by  the  struggles  of  rival  cities.  The  mer- 
chants of  New  York  thought  the  rates  to  and  from  the 
West  should  be  the  same  for  Philadelphia  and  Baltimore 
as  for  New  York,  and  less  for  New  York  than  for 
Boston;  but  the  merchants  of  Boston,  Philadelphia,  and 
Baltimore  thought  otherwise.  The  unregulated  competi- 
tion of  the  trunk  lines  and  the  protracted  rate  wars  were 
detrimental  to  the  trade  of  New  York,  largely  because 
the  traffic  that  had  previously  moved  by  the  Erie  Canal, 


220  AMERICAN  RAILWAY  TRANSPORTATION 

and  thus  to  New  York,  was  secured  by  the  railroads  and 
distributed  among  the  other  Atlantic  ports.  As  long  as 
the  canal  rates  were  considerably  lower  than  the  charges 
by  rail  the  commercial  superiority  and  progress  of  New 
York  were  assured;  but  the  diversion  of  the  canal  busi- 
ness to  the  railroads  threatened  to  check  the  advance  of 
the  trade  of  the  city.  The  New  York  Central  tried  to 
hold  the  trade  of  New  York  by  meeting  the  rates  of  the 
ambitious  and  reckless  rival  lines  that  were  striving  to 
build  up  the  trade  of  their  termini.  The  situation  of 
1876  was  almost  as  burdensome  to  the  business  interests 
of  the  several  Atlantic  seaports  as  it  was  to  the  railroad 
companies,  and  they  welcomed  the  settlement  of  the  rate 
war.  The  rival  claims  of  the  cities  as  to  the  rates  were 
adjusted  by  a  compromise  which  gave  New  York  and 
Boston  the  same  rate,  Philadelphia  a  slightly  lower  one,  and 
Baltimore  one  somewhat  less  than  Philadelphia  received. 
The  "  differential "  rate,  as  it  was  called,  that  was  finally 
agreed  on  in  favor  of  Philadelphia  as  compared  with  New 
York  was  two  cents  less  a  hundred  pounds  on  sixth-class 
freight.  The  corresponding  Baltimore  differential  was 
three  cents  less  a  hundred,  with  a  proportionately  larger 
differential  for  the  higher  classes  of  traffic.  This  compro- 
mise was  regarded  by  New  York  as  a  concession.  The 
merchants  of  that  city  were  not,  nor  have  they  since  been, 
satisfied  with  the  adjustment  of  the  rates  then  made. 

The  competition  among  the  railroads  in  the  West  and 
in  the  South,  though  less  intense,  was  similar  to  that 
among  those  in  the  northeastern  part  of  the  United  States. 
In  the  central  West  the  most  important  lines  converged 
at  Chicago,  with  which  point  St.  Louis,  Kansas  City, 
Omaha,  and  other  cities  had  each  been  connected  in  1870 
or  soon  thereafter,  by  two  or  more  rival  routes.  There 
were  three  lines  between  Chicago  and  St.  Louis  in  1870, 
and  later  others  were  constructed.     The  through  traffic 


COMPETITION  AND  RATE  AGREEMENTS  221 

of  the  Western  roads  generally  was  eagerly  contested  for, 
and  the  rates  fluctuated  violently.  In  the  Southern 
States  the  railroads  ran  from  the  interior  regions  of 
production  radially  to  the  ports  of  the  Atlantic  and  Gulf 
seaboards  and  to  the  markets  of  the  Northern  States. 
There  was  competition  among  the  railroads  to  secure  as 
much  business  as  possible  for  their  respective  ports,  and 
an  active  general  competition  between  the  railroads  and 
the  numerous  water-routes.  Traffic  between  the  E^orth- 
eastern  and  Southern  States  might  be  shipped  coastwise 
or  by  rail;  that  between  the  States  north  of  the  Ohio 
Eiver  and  those  of  the  lower  Mississippi  Valley  by  the 
Mississippi  and  its  tributaries  or  by  the  railroads;  while 
the  many  streams  of  the  South  were  highways  much  used 
in  moving  traffic  to  and  from  the  seaboard.  Under  these 
conditions  the  maintenance  of  published  rates  on  through 
rail  traffic  was  impracticable  until  a  way  was  found 
whereby  the  railroad  and  steamship  companies  could  work 
together  in  making  rates  and  dividing  up  the  total  busi- 
ness. A  plan  of  united  action  was  developed  and  inaugu- 
rated in  1875. 

In  order  to  understand  why  the  railroad  companies 
find  such  difficulty  in  maintaining  their  rates  and  why 
they  carry  their  rivalry  to  such  extremes,  one  needs  to 
consider  the  nature  of  railway  competition.  The  mer- 
chant or  the  man  who  has  invested  capital  in  a  business 
from  which  the  invested  capital  can  be  withdrawn  with- 
out much  loss  will  suspend  his  business  temporarily  or 
permanently  if  competition  becomes  so  severe  as  to  pre- 
vent him  from  earning  profits.  As  Professor  Hadley 
says :  "  If  Grocer  A  sells  goods  below  cost,  Grocer  B 
need  not  follow  him,  but  simply  stop  selling  for  the  time. 
For  (1)  this  involves  no  great  present  loss  to  B.  When' 
his  receipts  stop  most  of  his  expenses  stop  also.  (2)  It 
does  involve  a  present  loss  to  A.     If  he  is  selling  goods 


222  AMERICAN  RAILWAY  TRANSPORTATION 

below  cost,  lie  loses  more  money  the  more  busitiess  lie 
does.  (3)  It  can  not  continue  indefinitely.  If  A  returns 
to  paying  prices,  B  can  again  compete.  If  A  continues 
to  do  business  at  a  loss,  he  will  become  bankrupt,  and 
B  will  find  the  field  ^clear  again.'' ^ 

The  situation  is  very  different  with  competing  rail- 
roads. The  railroad  company  can  not  suspend  business 
when  competition  forces  down  the  rates,  although  the 
earnings  may  not  yield  any  profits  on  the  capital  invested. 
And  this  is  so  because  fully  three-fourths  of  the  ex- 
penses will  continue  even  if  the  railroad  ceases  to  carry 
traffic.  Very  little  of  the  capital  invested  in  a  railroad 
(and  the  same  is  true  in  a  large  measure  of  mining  en- 
terprises and  the  iron  and  steel  industries)  can  be  with- 
drawn. When  put  into  a  railroad,  capital  must  secure 
an  income  from  that  form  of  investment,  or  become 
worthless;  so  if  the  company  stops  doing  business,  no 
interest  on  the  investment  can  be  obtained.  But  more 
than  this,  the  railroad  company's  expenses  for  mainte- 
nance and  repairs,  and  its  losses  from  deterioration  of 
equipment,  road-bed,  and  structures  do  not  stop  when 
traffic  is  suspended.  About  all  a  railroad  company  can 
save  by  suspending  all  traffic  is  the  expenses  incurred  in 
operating  the  trains.  Such  being  the  case,  a  railroad 
will  not  surrender  its  traffic  to  a  rival,  even  though  the 
earnings  are  so  small  as  to  leave  no  surplus  to  pay  inter- 
est on  capital.  As  long  as  the  receipts  from  traffic  will 
cover  operating  expenses  and  yield  a  small  amount  in 
excess  to  apply  to  the  payment  of  expenses  that  must  be 
met  whether  business  is  being  carried  on  or  not,  the  rail- 
road will  seek  to  hold  its  traffic  against  its  competitors, 
or  endeavor  to  secure  the  business  being  handled  by  its 
rivals. 

Unless  a  railroad  is  exceptionally  strong  financially, 

*  Railroad  Transportation,  p.  73. 


COMPETITION  AND  RATE  AGREEMENTS  223 

it  can  not  carry  a  large  share  of  its  traffic  at  rates  but 
little  above  the  costs  of  operating  the  trains  without 
becoming  bankrupt;  but  the  insolvent  railway  does  not 
cease  to  do  business.  It  will  continue  to  be  operated 
either  by  its  former  owners  or  those  who  may  purchase 
it,  and  while  it  remains  in  a  condition  of  insolvency  it 
is  apt  to  seek  competitive  traffic  more  eagerly  than  its 
solvent  rivals  can  do  with  safety.  While  bankrupt,  the 
road  is  not  obliged  to  pay  interest  or  dividends  on  the 
capital  invested,  and  while  temporarily  freed  from  that 
obligation  ther^  is  a  strong  temptation  to  secure  new 
patronage  and  additional  tonnage.  Insolvent  roads  have 
frequently  yielded  to  this  temptation  and  have  made  reck- 
less wars  upon  their  rivals,  regardless  of  their  obligations 
to  treat  the  public  without  unjust  discrimination  and 
their  competitors  in  accordance  with  business  ethics. 

But  whether  solvent  or  bankrupt,  every  railroad  has 
a  strong  incentive  to  enlarge  its  business,  because  an 
increase  in  traffic  does  not  correspondingly  add  to  the 
expenses.  After  a  railroad  has  been  constructed, 
equipped,  and  put  into  operation  most  expenses  are  inde- 
pendent of  the  volume  of  traffic.  Just  as  the  expenses 
are  not  much  lessened  by  a  decrease  in  business  or  a 
suspension  of  operations,  so  are  they  enhanced  to  a  com- 
paratively small  extent  by  an  increase  in  the  traffic.  Until 
the  point  is  reached  when  the  facilities  of  a  railroad  are 
fully  utilized,  the  greater  the  volume  of  business  done 
the  less  the  costs  per  unit  of  business  (per  passenger  mile 
or  ton  mile),  and  the  higher  are  the  profits.  The  rail- 
road business  is  one  of  increasing  returns.  A  company 
with  a  traffic  of  1,000,000  tons  annually  will  much  more 
than  double  its  profits  by  carrying  2,000,000  tons,  pro- 
vided the  extra  business  can  be  secured  without  reducing 
the  rates,  and  if  a  considerable  reduction  in  rates  should 
be  necessary  to  secure  the  additional  traffic,  the  com- 


224  AMERICAN  RAILWAY  TRANSPORTATION 

pany  will  probably  add  to  its  profits  by  taking  the  extra 
tonnage. 

Such  being  the  nature  of  competition  in  railway 
affairs,  some  means  for  regulating  its  action  are  neces- 
sary if  the  service  of  railroad  transportation  is  to  be 
performed  with  profit  to  the  companies  having  it  in 
charge,  and  in  accordance  with  the  best  interests  of  the 
public.  If  interrailway  affairs  were  controlled  by  forces 
similar  to  those  governing  the  business  relations  of  per- 
sons engaged  in  agriculture  or  merchandising,  their  regu- 
lation by  unrestrained  competition  might  be  satisfactory; 
but  experience  has  clearly  shown  the  absolute  necessity 
for  cooperation  among  carriers  in  the  management  of 
their  competitive  as  well  as  their  joint  business.  Un- 
bridled competition  is  intolerable  alike  to  the  railroad 
companies  and  to  the  public,  and  must  of  necessity  be 
checked.  Whatever  is  ruinous  to  all  parties  must  be 
stopped,  and  if  the  ruinous  practises  have  no  natural 
limits,  an  artificial  one  must  be  established. 

If  the  competition  among  rival  railways  is  to  be 
restrained,  they  must  either  cooperate  or  consolidate.  If 
they  can  not  agree  upon,  and  work  in  accordance  with, 
business  methods  that  will  effectually  restrain  the  forces 
which  lead  to  ruinous  conipetition,  they  must  consoli- 
date under  a  single  ownership  or  a  common  control. 
There  is  no  other  alternative. 

An  agreement  for  the  restraint  of  competition  may 
be  for  the  accomplishment  of  one  or  more  of  four  pur- 
poses: (1)  The  agreement  may  be  to  maintain  rates,  each 
party  to  the  agreement  being  free  to  secure  as  much 
business  and  as  large  earnings  as  can  be  obtained  at  the 
rates  sanctioned  by  the  compact.  (2)  The  agreement  may 
divide  the  competitive  traffic  among  the  interested  roads, 
according  to  stipulated  percentages.  (3)  The  agreement 
may  allow  each  road  to  secure  as  much  as  possible  of  the 


COMPETITION  AND  RATE  AGREEMENTS  225 

competitive  business,  but  require  the  total  earnings  of  all 
the  lines  from  that  traffic  to  be  divided  according  to 
agreed  ratios.  (4)  The  company  may  decide  to  divide 
up  the  field,  each  company  receiving  a  section  of  country 
within  which  it  is  to  conduct  its  business  unmolested  by 
the  other  parties  to  the  agreement. 

The  first  form  of  agreement  is  the  easiest  one  to 
adopt,  and  was  the  one  first  employed  by  the  railroads  to 
regulate  their  competition.  The  second  and  third  forms 
of  agreements  are  called  pooling,  and  for  many  years 
pooling  arrangements  were  a  part  of  all  the  cooperative 
agreements  of  rival  railroads.  A  division  of  the  field  can 
scarcely  be  accomplished  to  much  extent  by  formal  agree- 
ments, but  must  come  about  mainly  as  the  result  of  the 
growth  of  large  systems  of  roads.  As  was  noted  in  Chap- 
ter Y,  a  grouping  of  the  railroads  of  the  United  States  is 
in  progress  that  promises  eventually  to  divide  the  country 
into  a  limited  number  of  sections,  the  railroads  in  each 
section  being  under  a  single  control. 

When  competition  for  long-distance  traffic  became 
active  in  the  early  fifties,  the  necessity  for  agreements  to 
prevent  the  cutting  of  rates  secretly  and  to  secure  sta- 
bility in  charges  became  apparent.  In  the  report  of  the 
Pennsylvania  Kailroad  in  1855,  the  president,  J.  Edgar 
Thompson,  stated  that  "with  a  view  to  agreeing  upon 
general  principles  which  should  govern  railroad  compa- 
nies in  competing  for  the  same  traffic  and  preventing 
ruinous  competition,  a  free  interchange  of  opinions  took 
place  during  the  past  year  between  the  officers  of  the  four 
leading  East  and  West  lines,  and  also  with  those  of  their 
Western  connections."  The  traffic  for  which  this  ^'  ruin- 
ous competition  "  was  then  being  indulged  in  was  quite 
as  much  the  west-bound  passenger  business  as  the  east- 
bound  freight  tonnage.  Later  the  freight  business  be- 
came the  main  object  of  competition. 
16 


226  AMERICAN  RAILWAY  TRANSPORTATION 

This  conference  did  not  secure  harmonious  action. 
In  1857  the  New  York  Central  and  the  Erie  engaged  in 
a  severe  struggle  for  control  of  the  passenger  travel  be- 
tween N^ew  York  and  Lake  Erie.  This  struggle  was  fol- 
lowed by  an  agreement  signed  by  the  presidents  of  the 
four  trunk  lines  "  for  the  purpose,"  as  President  Thomp- 
son stated  in  his  report  of  1858,  "  of  agreeing  upon 
remimerative  rates,  abolishing  injudicious  practises,  and 
effecting  a  harmony  of  purpose  conducive  to  the  mutual 
advantage  of  the  railway  interest  and  the  public."  The 
agreement,  among  other  things,  named  a  person  to  act  as 
umpire  for  the  adjustment  of  differences  among  the  par- 
ties to  the  compact. 

Agreements  similar  to  this  were  entered  into  fre- 
quently and  openly  by  the  railroad  companies  in  differ- 
ent parts  of  the  United  States  during  the  fifties  and  six- 
ties, the  officers  which  convened  to  make  the  agreements 
usually  being  the  general  freight-agents.  However, 
these  pledges  of  the  officers  of  the  competing  lines  failed 
to  secure  stable  rates.  Sudden  and  extreme  fluctuation 
characterized  competitive  charges,  and  it  was  evident  that 
some  more  effective  arrangement  was  needed. 

In  the  summer  of  1874  Commodore  Yanderbilt,  the 
president  of  the  I^ew  York  Central,  conferred  with  rep- 
resentatives of  the  Pennsylvania  and  Erie  Railroads  at 
Saratoga,  and  they  agreed  upon  a  board  of  arbitration 
to  settle  disputes  among  their  roads.  Their  idea  was  to 
agree  upon  rates  as  formerly  and  also  to  establish  a  cen- 
tral board  with  power  "  to  establish  rules  and  tariffs 
which  should  be  binding  upon  the  various  companies, 
and  this  central  board  it  was  intended  should  be  clothed 
with  sufficient  powers  to  hold  the  companies  firmly.  It 
was  an  attempt  to  substitute  arbitration  among  railroads 
for  a  condition  of  perpetual  warfare."  ^ 
*  Charles  Francis  Adams,  Railroads:  Their  Origin  and  Problems,  p.  153. 


COMPETITION  AND  RATE  AGREEMENTS  227 

Whether  this  plan  of  cooperation  would  have  suc- 
ceeded had  it  been  given  a  trial  is  doubtful;  but  it  was 
not  given  a  trial  because  it  was  not  acceptable  to  the 
Baltimore  and  Ohio  and  the  Grand  Trunk,  the  two  trunk 
lines  that  had  just  secured  Chicago  connections  and  were 
desirous  of  securing  the  maximum  amount  of  competitive 
traiSc.  The  Saratoga  Conference  raised  a  great  storm 
of  popular  opposition  to  the  railroads,  because  the  public 
thought  the  railroad  presidents  had  conspired  to  create 
an  oppressive  monopoly;  but  it  had  no  effect  in  checking 
interrailway  contests.  The  disastrous  rate  wars  of  1875 
and  1876  followed. 

The  agreements  to  maintain  rates  failed,  because 
there  was  no  authority  to  enforce  their  observance,  and 
the  incentives  to  break  the  contract  were  always  strong. 
The  rates  were  decided  upon  by  the  higher  officials  of 
the  companies,  and  they  or  their  representatives  agreed 
to  maintain  the  rates  thus  established;  but  as  soon  as  any 
company  suspected  another  of  violating  the  agreement, 
it  would  authorize  its  subordinate  officials  or  the  soliciting 
agents  "  to  do  as  others  are  doing  or  supposed  to  be 
doing.''  Railway  managers  saw  clearly  that  the  only  way 
to  maintain  rates  upon  traffic  for  which  several  inde- 
pendent railroads  were  competing  was  to  remove  the 
inducement  to  cut  the  rates.  They  sought  to  accomplish 
this  by  means  of  pooling. 


CHAPTER   XVI 

INTERR AIL W A Y    RELATIONS ( CONTINUED) 

II.  Pools  and  Traffic  Associations 

The  main  purpose  of  pooling  was  to  prevent  the  cut- 
ting of  rates  and  fares — the  establishment  of  conditions 
that  would  enable  the  railroads  to  enforce  their  agree- 
ments as  to  charges.  The  pools  were  agreements  among 
railroads  whereby  their  competitive  traffic  or  the  receipts 
from  that  traffic  were  divided  among  the  companies 
according  to  stipulated  ratios.  Arrangements  for  the  divi- 
sion of  the  business  were  called  traffic  pools,  those  for 
the  distribution  of  the  receipts  money  pools. 

The  arrangement  effected  by  a  freight-traffic  pool  is 
theoretically  simple.  The  roads  that  have  been  com- 
peting for  some  time  for  traffic  free  to  choose  its  route 
observe  what  share  of  the  total  traffic,  under  normal  and 
peaceful  conditions  of  rivalry,  is  carried  by  each  line,  and 
make  an  agreement  guaranteeing  that  each  road  shall 
carry  during  the  period  of  the  contract  the  percentage 
of  the  total  tonnage  to  which  past  experience  has  shown 
the  road  to  be  entitled.  If  a  road  while  a  member  of 
the  pool  does  not  receive  its  stipulated  share  of  the  total 
tonnage,  the  organization  having  the  management  of  the 
pool  in  charge  sees  that  tonnage  is  diverted  from  the 
roads  receiving  more  than  their  allotted  percentage  to 
the  line  having  a  tonnage  deficit.  In  order  to  make  a 
traffic  pool  effective,  the  railroad  companies,  instead  of 
228 


POOLS  AND  TRAFFIC  ASSOCIATIONS  229 

the  shippers,  must  determine  the  route  by  which  a  part 
of  the  traffic  shall  move.  Usually  shippers  object  to  sur- 
rendering their  right  to  determine  the  route  by  which 
their  goods  shall  be  taken,  and,  although  the  companies 
always  receive  a  considerable  tonnage  of  unrouted  ship- 
ments, the  railroads  have  more  often  preferred  to  allow 
each  road  in  the  pool  to  accept  and  forward  the  tonnage 
offered  to  it,  and  to  divide  among  each  other  the  receipts 
from  the  traffic  rather  than  the  tonnage — i.  e.,  to  estab- 
lish a  money  pool.  The  money  pool,  furthermore,  is  ap- 
plicable to  the  passenger  business  as  well  as  to  freight 
traffic. 

In  pooling  their  earnings  from  competitive  business, 
it  is  customary  for  each  road  to  retain  a  third  or  a  half 
of  the  revenue  it  derives  from  that  traffic,  and  to  turn 
the  remaining  two-thirds  or  half  into  the  pool  (or  joint 
purse,  as  it  is  called  in  England),  to  be  distributed  peri- 
odically among  the  pooling  lines  in  accordance  with  the 
percentages  stipulated  in  the  agreement.  Each  road  is 
allowed  to  retain  a  part  of  the  earnings  to  cover  the 
actual  expense*  of  conducting  the  transportation  affected 
by  the  pool,  and  the  percentage  withheld  from  the  joint 
purse  must  be  small  enough  to  remove  the  inducement 
to  attempt  to  capture  traffic  from  competitors.  At  one 
time  the  pooling  agreement  of  the  Southern  Railway 
and  Steamship  Association  required  80  per  cent  of  the 
receipts  to  be  paid  into  the  pool. 

A  railroad  company  naturally  dislikes  to  surrender 
any  of  its  receipts,  because  to  do  so  seems  like  giving  a 
part  of  its  earnings  to  a  rival;  consequently  the  enforce- 
ment of  the  pooling  agreement  has  not  always  been  easy. 
This  difficulty  has  been  in  some  degree  obviated  by  the 
practise  of  requiring  each  member  of  the  agreeijient  to 
leave  on  deposit  in  the  pool  at  the  time  of  each  periodical 
distribution  of  the  pooled  earnings  a  balance  sufficient  to 


230  AMERICAN  RAILWAY  TRANSPORTATION 

cover  any  payments  that  will  probably  need  to  be  made 
to  its  competitors. 

By  arrangements  such  as  may  be  established  by  the 
pooling  of  traffic  or  earnings  it  is  possible  to  prevent  a 
railroad  from  deriving  immediate  profit  from  secretly 
cutting  rates  or  openly  engaging  in  a  rate  war;  but  the 
temptation  for  a  road  to  increase  its  percentage  of  the 
total  traffic  carried  by  all  lines  is  not  wholly  removed. 
The  pooling  contracts  are  for  a  short  period  of  a  year, 
or,  at  most,  a  few  years,  and  every  road  desires  to  secure 
as  large  a  tonnage  as  possible  in  order  that  it  may  share 
more  largely  in  the  subsequent  allotment  of  percentages. 
The  pool  does  not  altogether  destroy  competition.  Even 
if  published  rates  are  fully  maintained,  there  is  bound  to 
be  a  rivalry  in  service,  each  road  endeavoring  to  secure 
the  largest  possible  volume  of  business. 

Professor  Hadley  states  in  his  Railroad  Transporta- 
tion that  "  the  earliest  railroad  pools  were  probably  de- 
veloped in  'New  England,  but  they  were  on  a  small  scale, 
and  the  whole  thing  was  often  so  quietly  done  that  their 
very  existence  was  almost  unsuspected."  So  little  is 
known  of  the  history  of  these  New  England  pools  it  is 
probable  that  they  were  not  important.  The  fir^t  pooling 
arrangement  of  much  consequence  was  established  in 
1870  by  the  railroads  connecting  Chicago  and  Omaha — 
the  ^^Torthwestern,  the  Rock  Island,  and  the  Burlington 
roads.  These  three  lines,  having  about  equal  facilities 
for  handling  the  traffic  between  Chicago  and  Omaha, 
agreed  that  each  route  should  have  a  third  of  the  business. 
The  charges  by  all  lines  were  to  be  the  same,  and  the 
traffic,  without  solicitation  by  the  companies,  was  to  take 
whichever  route  the  shippers  might  decide  to  patronize. 
According  to  the  first  agreement,  each  road  was  to  retain 
45  per  cent  of  the  receipts  from  the  through  passenger 
business  and  60  per  cent  of  the  earnings  from  the  through 


POOLS  AND  TRAFFIC  ASSOCIATIONS  231 

freight  traffic;  the  remainder  of  the  revenues  from  this 
competitive  business  was  to  be  shared  equally  by  the  three 
companies.  This  agreement  was  maintained  successfully 
for  fourteen  years,  with  the  exception  of  a  few  months 
in  the  summer  and  early  autumn  of  1882,  when  a  con- 
troversy regarding  the  distribution  of  freight  brought  on 
a  rate  war  of  a  few  months'  duration.  In  1884  the 
Chicago-Omaha  pool  gave  way  to  a  larger  organization — 
the  Western  Freight  Association. 

Six  years  after  the  establishment  of  the  Chicago- 
Omaha  pool  the  Southwestern  Railway  Rate  Association 
was  formed  to  adjust  the  rates  on  traffic  between  Mis- 
souri River  points  and  Chicago  and  St.  Louis,  and  to  dis- 
tribute the  earnings  from  that  traffic  among  the  several 
competing  lines.  One  purpose  of  the  association  was  to 
protect  the  grain-trade  interests  of  Chicago  and  St.  Louis 
from  the  consequences  of  unrestrained  competition.  The 
pooling  agreement  was  similar  to  that  of  the  Chicago- 
Omaha  pool,  except  that  there  were  more  roads  parties 
to  the  arrangement;  but  the  operation  of  the  larger  asso- 
ciation was  not  so  successful.  For  a  time  the  association 
acted  as  a  clearing-house  for  the  settlement  of  balances 
among  the  roads. 

In  addition  to  these  two  pooling  agreements,  numer- 
ous others  were  entered  into  by  the  railroads  of  the 
Central  and  Western  States  in  the  seventies  and  eighties, 
some  of  the  agreements  being  in  force  only  for  a  short 
time,  others  for  several  years.  The  traffic  between  Chi- 
cago and  Milwaukee  on  the  east,  and  St.  Paul  and  Min- 
neapolis on  the  west,  was  regulated  by  the  ^Northwestern 
Traffic  Association;  the  field  between  Chicago,  Milwau- 
kee, and  St.  Louis  on  the  east,  and  Omaha  and  Council 
Bluffs  on  the  west,  was  occupied  by  the  Western  Freight 
Association;  to  the  south  of  this  was  the  Southwestern 
Railway  Rate  Association  just  referred  to.     Among  the 


232  AMERICAN  RAILWAY  TRANSPORTATION 

organizations  having  authority  in  the  territory  west  of 
the  Missouri  KiA^er  were  the  Colorado  Eailway  Associa- 
tion, the  Colorado-Utah  Association,  the  Pacific  Coast 
Association,  and  the  Transcontinental  Association. 

The  Chicago-Omaha  agreement  entered  into  by  the 
Northwestern,  Rock  Island,  and  Burlington  Railroads  in 
1870  was  simply  to  establish  a  pooling  agreement;  but 
the  organizations  or  "  associations  "  subsequently  formed 
by  competing  railways  in  the  West  and  other  sections  of 
the  country  had  other  purposes  and  activities,  although 
the  pooling  of  traffic  or  earnings  was  their  main  object. 
In  the  traffic  associations  the  railways  attempted  to  regu- 
late all  their  interrelations.  They  fixed  the  rates  on 
joint  and  competitive  business,  laid  down  rules  regarding 
the  solicitation  of  traffic,  took  measures  to  prevent  fraud, 
determined  the  speed  at  which  the  fast  passenger-trains 
should  be  run,  decided  what  kinds  of  tickets  should  be 
issued,  and  what  privileges  should  be  afforded  or  denied 
shippers.  Until  1887  a  pooling  agreement  was  a  regular 
feature  of  the  organization  of  all  traffic  associations ;  since 
then  pooling  has  been  illegal,  but  the  traffic  associations 
have  continued  to  exercise  their  other  functions. 

The  traffic  association  was  developed  earliest  in  the 
States  south  of  the  Ohio  and  Potomac,  where,  in  1875, 
the  Southern  Railway  and  Steamship  Association  was 
formed  under  the  masterful  guidance  of  Albert  Fink. 
This  association  grew  out  of  pooling  agreements,  the 
first  of  which  was  entered  into  in  December,  1873,  by 
the  four  roads  connecting  Atlanta,  Ga.,  with  the  sea- 
board. The  pool  covered  only  the  cotton  business  of  the 
roads.  The  membership  of  the  association  comprised  the 
railroads  in  Virginia,  North  and  South  Carolina,  Georgia, 
Tennessee,  and  Alabama,  and  the  steamship  lines  con- 
necting those  roads  with  Baltimore  and  the  other  north 
Atlantic  seaports.     This  was  one  of  the  best  organized 


POOLS  AND  TRAFFIC  ASSOCIATIONS  233 

and  most  effective  traffic  associations,  and  came  later  to 
include  most  of  the  territory  east  of  the  Mississippi  River 
and  south  of  the  Ohio  and  Potomac.  In  its  plan  of 
organization  provision  was  made  for  an  annual  conven- 
tion composed  of  one  delegate  from  each  constituent 
company.  This  body  had  legislative  powers;  the  admin- 
istrative functions  were  exercised  by  a  general  commis- 
sioner, an  executive  committee  which  after  1883  con- 
sisted of  the  managers  of  the  principal  lines,  and  a  board 
of  arbitrators.  The  general  commissioner  was  given  large 
powers,  and  this  was  one  reason  why  the  organization 
proved  effective.  The  questions  the  commissioner  could 
not  settle  were  referred  to  the  Executive  Committee, 
which  had  jurisdiction  over  the  joint  and  competitive 
traffic.  Its  action  had  to  be  unanimous,  and  in  case  of 
a  disagreement  on  any  subject,  that  question  was  referred 
to  the  Board  of  Arbitrators  for  adjustment.  The  rates 
on  competitive  traffic  were  determined  by  the  Executive 
Committee,  which  also  apportioned  the  traffic  among  the 
competing  roads.  Each  road  carried  the  traffic  coming 
to  its  lines,  but  paid  a  large  part  of  its  gross  earnings 
from  the  competitive  traffic  (at  one  time  80  per  cent)  into 
the  pool  for  distribution,  according  to  the  stipulated  per- 
centages. One  useful  feature  of  the  association's  organ- 
ization was  the  clearing-house  for  the  settlement  of  the 
accounts  of  the  joint  traffic. 

Naturally  the  most  difficult  problems  the  association 
had  to  deal  with  were  the  allotments  of  traffic  among 
competitors.  These  allotments  covered  different  kinds 
of  traffic,  and  affected  several  groups  of  roads  and  steam- 
ship lines,  which  were  frequently  changing  their  relative 
efficiency  as  carriers.  Allotments  were  made  annually, 
and  usually  were  accepted  by  the  interested  companies, 
but  not  always,  and  local  rate  wars  occurred  from  time 
to  time.     The  local  troubles,  however,  did  not  disrupt  the 


234  AMERICAN  RAILWAY  TRANSPORTATION 

association,  because  the  withdrawal  of  a  member  did  not 
terminate  the  agreement  among  the  others,  and  because 
the  commissioner  was  given  such  power  to  discipline  a 
recalcitrant  line  that  he  was  usually  able  to  bring  it  into 
subordination.  Competition  was  active  among  the  pooled 
roads,  and  between. the  carriers  in  the  pool  and  those  out- 
side. Each  mernber  strove  to  increase  its  traffic  in  order 
to  make  as  large  a  showing  as  possible  when  the  annual 
allotments  were  made.  The  rates  fixed  by  the  associa- 
tion on  most  of  the  business  into  and  out  of  the  territory 
served  by  its  members  were  influenced  by  outside  competi- 
tion. The  rates  between  the  north  Atlantic  ports  and  the 
South  were  affected  by  the  charges  made  by  sailing  ves- 
sels. At  that  time  the  Mississippi  River  had  a  consider- 
able regulative  influence  on  rail  rates.  Furthermore, 
then,  as  now,  every  city  was  zealous  in  securing  as  liberal 
rates  as  possible  as  compared  with  its  rivals.  If  any  indus- 
trial or  commercial  center  within  the  territory  of  the 
pooled  lines  were  charged  higher  rates  than  its  rivals 
without  that  territory,  the  city  and  the '  roads  serving 
it  were  liable  to  lose  their  business,  and  care  was  taken 
to  guard  against  such  a  result. 

The  competition  among  the  railroads  was  heaviest  in 
the  territory  between  the  central  West  and  the  North 
Atlantic  seaboard,  and  greater  difficulty  was  experienced 
there  than  in  the  West  or  South  in  making  effective  pool- 
ing agreements.  The  first  agreement  affecting  competi- 
tive traffic  in  this  field  was  one  between  the  railroads 
mining  and  carrying  most  of  the  anthracite  coal.  In 
1872  they  entered  into  a  contract  restricting  the  amount 
of  coal  to  be  mined,  and  dividing  up  the  production  and 
traffic  according  to  fixed  ratios.  This  agreement  lasted 
for  four  years,  and  was  followed  by  others  from  1878  on, 
which  did  something  to  steady  the  prices  and  output  of 
coal,  but  which  never  fully  accomplished  the  purpose. 


POOLS  AND  TRAFFIC  ASSOCIATIONS  235 

Another,  and  a  decidedly  objectionable  plan  for  regu- 
lating the  competitive  relations  of  the  trunk  lines  was 
to  make  certain  large  shippers  the  "  eveners "  of  the 
traffic  of  the  rival  roads.  In  applying  this  method  of 
distributing  business,  the  railroads  first  decided  what 
share  of  the  total  tonnage  should  go  to  each  line,  and 
then  arranged  with  large  shippers  to  allot  their  freight 
from  time  to  time  among  the  several  roads  in  such  a  way 
as  to  enable  each  route  to  secure  its  stipulated  share  of 
the  total  of  all  competitive  traffic.  The  first  eveners  were 
the  shippers  of  live  stock  from  Chicago  to  the  East,  with 
whom  the  railroad  companies  made  an  agreement  in  1875. 
The  Standard  Oil  Company  was  another  evener.  These 
"eveners"  were  remunerated  for  their  trouble  by  being 
given  better  rates  than  other  shippers.  The  large  ship- 
per was  favored  at  the  expense  of  the  smaller  ones,  and 
the  discrimination  was  most  unjust.  The  large  shippers 
who  acted  as  eveners  were  quick  to  take  advantage  of 
the  situation.  The  railroad  companies  being  unable  to 
restrain  competition,  were  willing  to  pay  a  large  price 
for  a  peaceful  division  of  traffic,  and  the  concessions  in 
rates  demanded  and  received  by  the  large  shippers  were 
excessive  and  ruinous  to  other  shippers.  In  1879 — that 
is,  when  the  trunk  lines  succeeded  in  pooling  their  east- 
bound  business — the  evener  plan  of  distributing  traffic 
was  terminated.  That,  however,  did  not  end  the  large 
shipper's  opportunity  to  secure  special  favors.  The  prob- 
lem of  discrimination  remained,  and  unfortunately  is  still 
present. 

Three  years  of  strife,  much  of  which  consisted  of 
violent  rate  wars,  followed  the  failure  of  the  Saratoga 
Conference,  then,  in  1877,  the  necessitous  condition  of 
the  trunk  lines  and  the  pressure  of  the  commercial  inter- 
ests affected  by  the  struggle  caused  the  roads  serving  the 
north  Atlantic  ports  to  unite  upon   a  pooling  arrange- 


236  AMERICAN  RAILWAY  TRANSPORTATION 

ment.  Albert  Fink  was  called  to  their  assistance,  and  in 
July  an  organization  of  the  four  trunk  lines  from  the 
seaboard  to  Lake  Erie  and  the  Ohio  River  was  effected. 
In  December  the  roads  between  Pittsburg,  Erie,  and 
Buffalo  on  the  east,  and  Chicago  and  St.  Louis  on  the 
west  (what  is  now  called  Central  Traffic  Territory)  estab- 
lished a  like  organization.  The  organization  in  both 
cases  consisted  merely  of  an  "  executive  committee,''  in 
which  each  road  subject  to  the  agreement  was  represented. 
Albert  Fink  was  chairman  of  the  Executive  Committee  of 
the  Trunk  Line  Association. 

Pooling  was  the  main  purpose  of  each  organization. 
The  apportionment  of  the  west-bound  traffic  from  'New 
York  was  made  in  1877;  the  New  York  Central  and 
Erie  were  each  to  have  33  per  cent,  the  Pennsylvania 
25  per  cent,  and  the  Baltimore  and  Ohio  9  per  cent.  The 
pooling  of  the  traffic  eastward  from  Chicago  was  a  more 
difficult  task,  and  was  not  accomplished  until  1879.  In 
that  year  Albert  Fink  further  developed  the  organization 
of  the  railroads  between  the  central  West  and  the  sea- 
board by  securing  the  establishment  of  the  Joint  Execu- 
tive Committee,  composed  of  representatives  of  the 
"Trunk  Lines,"  from  the  seaboard  to  the  Ohio  and  Lake 
Erie,  and  of  their  Chicago  connections.  This  Joint  Ex- 
ecutive Committee  was  an  organization  similar  to  the 
Southern  Railway  and  Steamship  Association,  but  it 
did  not  give  its  chairman,  Mr.  Fink,  as  much  author- 
ity as  he  had  had  as  commissioner  of  the  Southern  Asso- 
ciation. 

The  Joint  Executive  Committee  endeavored  to  ac- 
complish three  things:  (1)  To  fix  the  rates  (or  the  "dif- 
ferentials ")  which  Philadelphia  and  Baltimore  should 
have  as  compared  with  E^ew  York  and  Boston  on  the 
Western  business;  (2)  to  apportion  the  total  competitive 
traffic  among  the  interested  roads;  (3)  to  have  supervision 


POOLS  AND  TRAFFIC  ASSOCIATIONS  237 

over  the  joint  traffic  shared  by  the  roads  east  and  west 
of  Buffalo,  Erie,  and  Pittsburg. 

The  first  of  these  problems  proved  a  most  difficult 
one,  and  was  never  settled  to  the  satisfaction  of  all  par- 
ties. The  compromise  arrangement,  described  on  page 
220,  probably  dealt  with  the  question  as  fairly  as  it  is 
possible.  Indeed,  Albert  Fink's  report  on  Adjustment 
of  Railroad  Transportation  Rates,  made  in  1882,  showed 
clearly  that  the  rates  from  the  central  West  to  each  of 
the  north  Atlantic  ports  were  at  that  time,  and  must  be 
a  part  of  the  through  rates  from  the  central  West  to 
Liverpool  and 'Europe,  and  that  the  rail  charges  to  Phil- 
adelphia and  Baltimore  were  as  much  less  than  those  to 
'New  York  as  the  ocean  rates  from  Philadelphia  and 
Baltimore  to  Europe  were  greater  than  from  New  York 
to  Europe.  The  Legislature  of  New  York  State  mani- 
fested its  disapproval  of  the  formation  of  the  Joint  Ex- 
ecutive Committee,  and  of  its  settlement  of  the  question 
of  differential  rates,  by  the  appointment  of  a  committee 
of  investigation — the  Hepburn  Committee — whose  inves- 
tigations and  report  added  much  to  public  information 
regarding  the  railway  problem  in  general,  although  it 
threw  little  light  on  the  question  of  the  effect  of  railway 
pooling  on  the  business  of  ISTew  York  State  and  city.  The 
New  York  Central  Railroad  felt  dissatisfied  with  the 
differential  rates,  and  carried  on  a  rate  war  in  1881,  and 
another  in  1884. 

The  second  duty  assigned  the  Joint  Executive  Com- 
mittee— the  pooling  of  east-bound  traffic — was  performed 
in  1879.  To  enforce  the  pooling  agreements,  and  to  super- 
vise the  business  arrangements  and  rates  affecting  the  joint 
business  of  the  Eastern  lines  and  their  Western  connec- 
tions, a  progressively  efficient  organization  was  developed. 
As  reconstructed  in  1885,  the  organization  of  the  Eastern 
or  "  trunk  lines  "  was  a  money  pool  governed  by  a  com- 


238  AMERICAN  RAILWAY  TRANSPORTATION 

mittee  of  the  presidents  of  the  roads,  to  which  appeal 
might  be  taken  from  the  Executive  Committee.  A  final 
appeal  might  be  made  to  a  permanent  arbitrator  appoint- 
ed by  the  president's  committee.  The  chief  administra- 
tive officer  of  the  organization  was  the  chairman  of  the 
Executive  Committee.  As  thus  constituted,  the  organi- 
zation gave  promise  of  being  able  to  maintain  orderly 
relations  among  the  carriers  competing  for  the  vast  traffic 
moving  east  and  w^est  through  the  north  Atlantic  ports; 
but  in  1887  the  vitality  of  the  organization  was  largely 
impaired  by  the  law  making  illegal  the  pooling  of  freight 
traffic. 

In  the  foregoing  paragraphs  an  account  has  been  given 
of  the  more  important  but  not  of  all  the  railway  pools 
that  were  organized  in  the  seventies  and  eighties.  In 
1887  practically  all  the  roads  having  a  large  volume  of 
competitive  traffic  were  members  of  some  pooling  organ- 
ization. The  interrailway  relations  were  not  altogether 
satisfactory,  but  the  conditions,  at  least  as  far  as  the  car- 
riers were  concerned,  were  improving.  Progress  was 
being  made  in  regulating  rate  fluctuations  and  the  conse- 
quent discriminations.  It  does  not  seem,  moreover,  that 
the  pools  were  a  detriment  to  the  public.  Although  the 
rival  railroads  made  their  rates  by  joint  action,  and 
united  to  maintain  the  charges  thus  agreed  upon,  they  were 
not  able  to  control  the  industrial  forces  to  which  trans- 
portation charges  are  in  a  large  measure  subject.  E^or  was 
it  possible  for  the  railroads  by  means  of  rate  agreements 
and  pools  to  prevent  the  ocean,  the  large  rivers,  and  the 
Great  Lakes  from  exercising  a  wide"  and  effective  influence 
on  rail  rates.  Erom  1870,  when  pooling  began,  to  1887, 
when  it  was  prohibited  by  law,  the  average  receipts  of 
the  railroads  of  the  United  States  for  hauling  a  ton  of 
freight  one  mile  declined  from  nearly  two  cents  (in  gold) 
to  about  one  cent;  in  other  words,  the  average  ton-mile 


POOLS  AND  TRAFFIC  ASSOCIATIONS  239 

earnings  in  1887  were  only  a  little  more  than  half  those 
of  1870.  Charges  did  not  decrease  because  of  pools,  but 
the  pools  did  not  prevent  their  decline. 

Nevertheless,  the  public  was  strongly  opposed  to  pools. 
The  people  generally  thought  that  pooling  enabled  the 
railroads  to  establish  monopoly  conditions  in  transporta- 
tion; indeed,  the  public  opposition  to  railway  practises 
(some  of  which  were  not  objectionable)  during  the  sev- 
enties and  eighties  centered  against  pooling.  It  can  not 
be  shown,  however,  that  pooling  enabled  the  railroads  to 
fix  their  charges  at  will,  and  it  is  clear  enough  that  dis- 
crimination in  rates  and  fares  rather  than  the  coopera- 
tion of  competing  railroads  was  the  central  abuse. 

Section  5  of  the  Interstate  Commerce  Act,  passed  by 
Congress  in  1887,  declares: 

"  That  it  shall  be  unlawful  for  any  common  carrier 
subject  to  this  act  to  enter  into  any  contract,  agreement, 
or  combination  with  any  other  common  carrier  or  car- 
riers for  the  pooling  of  freights  of  different  competing 
railroads,  or  to  divide  between  them  the  aggregate  or  net 
proceeds  of  the  earnings  of  such  railroads  *or  any  portion 
thereof;  and  in  any  case  of  an  agreement  for  the  pooling 
of  freights  as  aforesaid,  each  day  of  its  continuance  shall 
be  deemed  a  separate  offense.'' 

Previous  to  the  passage  of  this  law,  similar  action 
had  been  taken  by  several  of  the  States,  particularly  by 
those  in  the  central  West,  where  the  necessity  for  re- 
forming the  methods  of  railway  management  was  most 
keenly  felt,  and  this  antipooling  section  of  the  national 
act  was  demanded  by  the  members  of  the  House  of  Rep- 
resentatives from  the  South  and  West.  The  Senate  was 
not  in  favor  of  prohibiting  pooling,  but  the  House  of 
Representatives  insisted  upon  its  being  done. 

In  a  certain  sense  pooling  contracts  had  never  been 
legal.    The  railroad  companies  did  not  commit  an  offense 


2^0  AMERICAN  RAILWAY  TRANSPORTATION 

by  entering  into  a  pooling  agreement,  but  the  contracts 
thus  made  could  not  be  enforced  by  legal  action,  because 
the  courts  regarded  them  as  being  in  restraint  of  trade. 
It  is  a  general  principle  of  common  law  that  contracts 
in  restraint  of  trade  are  void  because  they  are  in  con- 
flict with  public  policy.  The  sense  in  which  pooling  agree-' 
ments  were  illegal  before  1887  was  clearly  stated  by 
Judge  Cooley.  "  A  contract/^  he  says,  "  may  be  illegal 
in  the  sense  that  it  is  forbidden  by  a  law  which  imposes 
some  penalty  for  entering  into  it;  or  it  may  be  illegal 
because,  though  not  forbidden,  it  is  considered  to  be 
of  an  injurious  and  demoralizing  tendency,  and  therefore 
the  law  will  not  favor  it,  but  will  refuse  to  lend  its  aid 
in  its  enforcement.  If  a  contract  is  only  illegal  in  this 
last  sense,  parties  are  at  perfect  liberty  to  enter  into  it 
if  they  please,  but  performance  of  its  conditions  must  be 
entirely  voluntary.'' 

Xot  being  enforceable  by  legal  procedure,  the  strength 
of  the  pooling  agreement  depended  upon  the  honor  of 
the  members  to  the  contract  and  upon  the  successful 
imposition  of  fines  for  a  violation  of  its  terms.  Large  use 
was  made  of  fines  to  enforce  the  agreements,  the  collec- 
tion of  the  fines  being  secured  by  requiring  members 
to  keep  a  considerable  deposit  in  the  pool.  It  is  thought 
by  many  persons  that  railway  pooling  has  never  been 
given  a  thorough  test  in  this  country,  because  of  the 
extra  legal  character  of  the  contracts;  but  whether  the 
pooling  agreements  would  really  have  been  more  effective 
had  they  been  sanctioned  by  law  is  uncertain.  The  pool 
was  an  agency  by  which  the  railroads  sought  to  cooper- 
ate; indeed,  it  was  in  many  respects  the  medium  by 
which  the  rival  companies  sought  to  arbitrate  their  con- 
flicting interests,  and  it  is  doubtful  whether  contracts  for 
the  promotion  of  those  ends  would  have  gained  much 
strength  from  the  sanctions  and  penalties  of  the  law. 


POOLS  AND  TRAFFIC  ASSOCIATIONS  241 

The  prohibition  of  pooling  in  1887  compelled  a  reor- 
ganization of  traffic  associations,  but  the  necessity  for 
cooperation  required  the  continuance  of  the  associations. 
The  trunk  lines  signed  new  articles  of  agreement  a  few 
days  after  the  interstate  commerce  law  went  into  effect 
"  for  the  purpose  of  facilitating  the  transaction  and  inter- 
change of  business  with  each  other  and  with  their  con- 
necting lines/'  The  Grand  Trunk  was  not  a  party  to 
this  agreement,  and  a  serious  rate  war  followed,  the  re- 
sult of  which  was  a  new  agreement  in  1889,  at  which 
time  the  Grand  Trunk  became  a  member  of  the  Trunk 
Line  Association. 

The  Southern  Railway  and  Steamship  Association 
eliminated  the  pooling  part  of  its  organization,  and  con- 
tinued to  exist.  By  means  of  fines  it  was  able  to  prevent 
serious  rate  disturbances  until  the  business  depression  of 
1893  came,  when  the  struggle  for  traffic  became  so 
intense  that  the  association  was  unable  to  control  the 
action  of  its  members,  and  the  organization  was  ter- 
minated. Two  years  later  the  Southern  States  Freight 
Association  was  formed. 

Rate  wars  prevailed  generally  west  of  Chicago  in 
1887  and  1888,  and  the  railroad  companies  had  great 
difficulty  in  forming  organizations  strong  enough  to  pre- 
vent rate  cutting  and  retaliation.  The  various  associa- 
tions that  had  existed  previous  to  the  prohibition  of  pool- 
ing were  reorganized,  and,  in  addition  to  the. local  bodies, 
the  presidents  of  the  interested  roads,  early  in  1889, 
organized  "  the  Interstate  Commerce  Railway  Associa- 
tion," with  the  hope  of  exercising  an  effective  control 
throughout  the  entire  territory  west  of  Chicago,  with  the 
exception  of  that  served  only  by  the  Pacific  roads  and  the 
international  lines.  This  organization  was  a  failure,  as 
was  also  one  which  succeeded  it,  and  it  was  not  until  Janu- 
ary, 1891,  when  the  Western  Traffic  Association  was 
17 


242  AMERICAN  RAILWAY  TRANSPORTATION 

formed,  that  the  railroads  composing  the  several  traffic 
organizations  west  and  southwest  of  Chicago  were  able 
to  cooperate  with  any  degree  of  success.  The  Western 
Traffic  Association  did  not  supplant  the  smaller  organiza- 
tions, but  federated  them  by  being  a  court  of  appeal  in 
matters  of  rates  and  in  other  controversies.  One  of  the 
most  vigorous  of  the  subordinate  bodies  was  the  Trans- 
Missouri  'Freight  Association,  whose  history  will  be 
referred  to  in  the  next  chapter. 

The  Pacific  roads,  including  the  Canadian  line,  organ- 
ized the  Transcontinental  Association  in  1888.  The 
chief  problem  that  body  had  to  solve  was  the  competition 
of  the  Canadian  Pacific  with  the  American  lines.  Dif- 
ferential and  lower  rates  via  the  Canadian  road  were 
agreed  to,  but  as  this  was  not  satisfactory  to  the  Southern 
Pacific,  the  Transcontinental  Association  came  to  an  end 
in  1892.  The  following  year  the  three  California  lines 
established  a  Transcontinental  Freight  Rate  Committee, 
which  was  in  existence  until  1897,  when  it  gave  place  to 
the  Transcontinental  Freight  Bureau,  of  which  all  the 
Pacific  lines  in  the  United  States  are  members.  This 
organization  is  still  in  existence. 

The  traffic  associations  thus  reorganized  endeavored 
to  regulate  the  interrelations  of  rival  carriers,  but  with- 
out much  success.  When  the  business  depression  of  1893 
and  the  following  four  years  caused  railway  traffic  to  fall 
off  many  roads  became  bankrupt  and  others  were  threat- 
ened with  insolvency.  The  struggle  for  business  became 
intense  and  ruthless,  and  discriminations  were  general. 
The  regulation  of  competition  by  pooling  was  not  per- 
missible, but  under  the  stress  of  circumstances  the  rail- 
roads sought  to  do  secretly  or  indirectly  what  the  law 
prevented  them  from  doing  openly.  In  justification  of 
their  action  the  railroad  companies  asserted  that  the 
law  imposed  impossible  conditions  upon  them.     However 


POOLS  AND  TRAFFIC  ASSOCIATIONS  243 

that  may  have  been,  it  is  certain  that  the  financial  con- 
dition of  the  railways  was  most  unsatisfactory  from  1893 
to  1897;  that  condition,  however,  was  mainly  the  result 
of  the  speculative  financiering  of  the  preceding  twenty 
years.  The  antipooling  law  was  only  one  and  a  minor 
cause  of  their  discomfiture. 


CHAPTEK   XVII 

INTEERAILWAY    RELATIONS {CONTINUED) 

III.  The  Present  Situation 

The  methods  by  which  the  railroads  attempted  to 
regulate  their  competitive  relations  after  pooling  had 
been  prohibited  are  shown  in  the  agreements  entered  into 
by  the  members  of  the  Trunk  Line  Association  and  by 
the  roads  which  formed  the  Trans-Missouri  Freight  Asso- 
ciation. Article  YIII  of  the  Trunk  Line  Association's 
agreement  stipulated  that  "if  the  maintenance  of  uni- 
form tariffs  by  all  lines  reduces  the  traffic  of  any  party 
below  a  fair  proportion  of  the  traffic  in  competition,  the 
tariffs  may  be  so  adjusted  from  time  to  time  as  to  protect 
such  lines  from  an  unjust  depletion  of  traffic,  such  ad- 
justment to  be  made  under  the  rules  of  this  association." 
Likewise  the  articles  of  agreement  of  1893  of  the  Cen- 
tral Traffic  Association,  of  which  also  the  trunk  lines 
were  members,  contained  the  proviso  that  "  whenever 
any  party  hereto  feels  that  its  traffic  is  being  unjustly 
depleted,  it  shall  represent  the  facts  in  writing  to  the 
commissioner,  who  shall  promptly  endeavor  to  secure 
to  the  parties  hereto  their  fair  shares  of  traffic.''  What 
was  to  be  considered  each  road's  "  fair  proportion  "  of 
traffic  was  not  stated  in  the  agreements,  but  in  all  prob- 
ability there  was  a  tacit  understanding  on  that  question. 

The  Trunk  Line  and  Central  Traffic  Associations  did 
not  succeed  in  federating  in  an  efficient  common  organi- 
244 


PRESENT  INTERRAILWAY  RELATIONS  245 

zation  until  the  close  of  1895.  They  had  a  joint  commit- 
tee before  that  date,  but,  unlike  the  Joint  Executive  Com- 
mittee that  had  existed  from  1879  to  1887,  it  had  very 
little  power.  After  making  unsuccessful  efforts  to  fed- 
erate in  1892  and  in  1894,  they  were  brought  together 
in  1895  by  the  stress  of  circumstances.  Traffic  was  light, 
competition  ruthless,  rates  were  not  maintained,  and  the 
securities  of  their  companies  were  at  a  low  ebb.  The 
Joint  Traffic  Association,  which  took  charge  of  the  joint 
and  competitive  business  of  32  roads  in  the  Trunk  Line 
and  Central  Traffic  Associations  January  1,  1896,  was 
managed  by  a  board  of  nine  men  representing  the  nine 
largest  systems  of  roads.  This  board  was  responsible  to 
the  council  of  the  presidents  of  the  roads,  and  there  was 
a  permanent  board  of  three  arbitrators.  The  Board  of 
Managers  did  not  prescribe  the  rates  to  be  charged  by 
the  several  companies,  but  recommended  the  rates  to  be 
fixed  by  each  road;  but  as  the  articles  of  association  stip- 
ulated that  "  the  failure  to  observe  such  recommendations 
shall  be  deemed  a  violation  of  this  agreement,"  and  as  a 
violation  of  the  contract  was  punishable  by  a  fine  of 
$5,000,  or  an  amount  equal  to  the  gross  receipts  of  the 
transaction  concerned  in  the  violation,  the  rates  were  in 
reality  determined  by  the  association.  Likewise  the 
traffic  was  apportioned  among  the  competing  roads  by 
the  organization.  There  was  nothing  specific  in  the  arti- 
cles of  agreement  regarding  the  allotment  of  percentages, 
but  in  1896  an  award  of  the  arbitrators  apportioned  the 
traffic  east-bound  from  Chicago  among  the  ten  interested 
roads. 

The  Joint  Traffic  Association  lasted  less  than  three 
years,  and  was  brought  to  an  end  by  a  decision  of  the 
Supreme  Court.  Indeed,  the  United  States  commenced 
proceedings  against  the  association  immediately  after  its 
activity   began,    on   the   grounds    that    the    organization 


246  AMERICAN  RAILWAY  TRANSPORTATION 

accomplished  pooling,  and  was  a  violation  of  the  Inter- 
state Commerce  Act,  and  that  it  was  a  combination  in 
restraint  of  trade,  and  therefore  contravened  the  Anti- 
trust Act  of  July  2,  1890.  In  the  lower  courts  the  asso- 
ciation won,  but  it  lost  in  the  Supreme  Court,  which 
based  its  decision  mainly  on  the  antitrust  law,  the  court 
in  1897  having  held  that  law  to  apply  to  railroad  agree- 
ments to  ^  and  maintain  rates. 

The  decision  of  1897  was  in  the  case  of  the  United 
States  against  the  Trans-Missouri  Freight  Association. 
This  association  began  April  30,  1889,  and  had  super- 
vision over  the  competitive  traffic  of  18  roads  west  of  the 
Missouri  River  and  the  ninety-fifth  meridian.  The  pur- 
pose of  the  organization  was  "  mutual  protection  by  estab- 
lishing and  maintaining  reasonable  rates,  rules,  and  regu- 
lations on  all  freight  traffic,  both  through  and  local."  In 
1892  action  was  begun .  in  the  United  States  Circuit 
Court  to  have  the  association  dissolved  on  the  plea  that 
it  violated  the  Antitrust  Act.  The  Circuit  Court  and 
the  Circuit  Court  of  Appeals  decided  that  this  act  did 
not  apply  to  railroads,  but  the  Supreme  Court,  on  the 
22d  of  March,  1897,  held  to  the  opposite  opinion.  By 
the  act  of  July  2,  1890,  "  every  contract,  combination  in 
the  form  of  a  trust  or  otherwise,  or  conspiracy,  in 
restraint  of  trade  or  commerce,  among  the  several  States, 
or  with  foreign  nations,  is  hereby  declared  to  be  illegal." 
Congress  did  not  have  railroads  in  mind  in  passing  this 
law,  but  as  railway  combinations  were  not  exempted  by 
the  terms  of  the  law,  the  Supreme  Court  held  that  they 
came  under  the  act  if  they  effected  a  restraint  of  trade 
or  commerce.  The  court  also  took  the  ground  that  an 
agreement  among  competing  railways  to  maintain  rates — 
although  the  rates  in  question  were  reasonable  and  law- 
ful^— was  a  restraint  of  trade,  was  contrary  to  public 
policy,  and  was  a  violation  of  the  antitrust  law. 


PRESENT  INTERRAILWAY  RELATIONS  247 

The  decision  of  the  Supreme  Court  in  the  cases 
against  the  Joint  Traffic  and  Trans-Missouri  Freight  Asso- 
ciations restricted  the  possibilities  of  lawful  cooperation 
among  independent  railroads  within  very  narrow  limits. 
Before  1887  competing  railways  had  been  permitted  to 
agree  upon  and  to  unite  in  efforts  to  maintain  rates  and 
fares  on  interstate  traffic  and  to  pool  their  business  or  its 
earnings;  after  1887  freight  pooling  contracts  were  ille- 
gal, but  rate  agreements  were  considered  lawful  until 
1897,  when  the  Supreme  Court  held  the  law  of  July  2, 
1890,  to  apply  to  railroads.  Since  then  concerted  action 
either  in  fixing  or  maintaining  charges  has  been  unlawful. 
The  traffic  associations  lost  their  efficiency  as  regu- 
lators of  interrailway  competition  in  1897  and  1898,  and 
the  railroads  were  obliged,  if  they  observed  the  letter  and 
spirit  of  the  law,  either  to  permit  the  return  of  unre- 
strained rivalry  or  to  seek  some  other  method  than  asso- 
ciation for  the  control  of  their  interrelations.  One  thing 
done  by  the  railroads  was  to  consolidate  much  more  ^ 
rapidly  than  they  had  ever  done  previously.  The  large 
systems  became  larger  by  the  absorption  of  the  smaller 
ones,  and  the  systems  thus  enlarged  further  strengthened 
their  power  to  act  harmoniously  by  the  "  community  of 
interest ''  principle  of  ownership  and  management. 

The  traffic  associations  were  not  abandoned.  Their 
articles  of  agreement  were  so  changed  as  to  make  them 
conform  to  the  law — i.  e.,  the  functions  of  making  and 
maintaining  charges  were  left  with  the  individual  compa- 
nies— at  least  theoretically  and  technically  that  was  done. 
As  a  matter  of  fact,  however,  the  railways  must  cooperate 
in  a  large  measure  in  classifying  traffic,  in  working  out 
their  schedules  of  rates,  and  in  fixing  the  joint  and  com- 
petitive charges  exacted  for  the  performance  of  the  vast 
and  intricate  service  of  transportation.  Were  each  com- 
pany to  act  solely  for  itself  and  without  regard  to  the 


2tt8  AMERICAN  RAILWAY  TRANSPORTATION 

classifications  being  followed  and  the  charges  being  made 
bj  the  railroads  serving  other  centers  of  population  and 
regions  of  production,  the  result  would  be  intolerable 
discriminations  and  business  conditions  little  less  than 
chaotic.  Indeed,  it  would  be  impossible  for  the  rail- 
roads to  observe  the  Interstate  Commerce  Act  or  any 
other  law  requiring  them  to  exact  of  all  persons  and  all 
places  only  reasonable  and  just  fares  and  rates.  And 
so  to-day,  while  nominally  each  railroad  must  prescribe 
its  own  charges,  its  officials  must  confer  with  those  of 
other  lines  regarding  joint  and  competitive  business  and 
cooperate  with  them  in  making  classifications  and  adjust- 
ing rates.  The  meetings  of  the  traffic  associations  afford- 
ed the  opportunity  for  such  cooperation.  These  associa- 
tions, moreover,  now  as  formerly,  concern  themselves 
with  numerous  matters  other  than  pooling  and  rate  agree- 
ments, affecting  the  interrelations  of  railways.  Indeed, 
the  informal  rate  agreements  decided  upon  at  the  meet- 
ings of  these  traffic  associations  have  been  so  generally 
accepted  by  the  constituent  companies  as  to  cause  the 
Interstate  Commerce  Commission  to  assert  in  its  report 
for  1901  "  that  the  decision  of  the  United  States  Supreme 
Court  in  the  Trans-Missouri  case  and  the  Joint  Traffic 
Association  case  has  produced  ho  practical  effect  upon  the 
railway  operations  of  the  country.  Such  associations,  in 
fact,  exist  now  as  they  did  before  those  decisions,  and 
with  the  same  general  effect."  It  should  be  added,  how- 
ever, that  the  associations  have  been  able  to  produce 
"  the  same  general  effect ''  during  a  period  of  business 
prosperity.  It  is  not  at  all  certain  that  the  recommenda- 
tions of  the  associations  as  to  rates  would  have  had  much 
effect  had  every  road  been  struggling  to  the  uttermost  to 
increase  its  tonnage. 

The  list  of  railway  associations  published  monthly  in 
the  Official  Guide  of  the  Railways  of  the  United  States 


PRESENT  INTERRAILWAY  RELATIONS  249 

contains  the  names  of  nearly  150  organizations.  Some 
of  these  are  associations  of  technical  officials,  like  sur- 
geons, master  mechanics,  engineers  of  maintenance  of 
Avay,  and  accounting  officers.  In  other  organizations  the 
membership  is  made  up  of  administrative  officers,  such 
as  general  baggage  agents,  general  passenger  and  ticket 
agents,  railroad  superintendents,  etc.  Most  of  the  organ- 
izations are  traffic  associations.  There  are  the  three  clas- 
sification committees,  the  official,  Southern,  and  Western, 
and  a  large  number  of  passenger  and  freight  associations. 
Some  of  the  bodies,  like  the  Chicago  Freight  Committee, 
have  strictly  local  jurisdiction.  Boston,  Cincinnati,  Cleve- 
land, St.  Louis,  and  other  cities  have  such  committees. 
The  most  important  organizations  are  the  passenger  and 
freight  associations,  some  of  which  include  the  railroad 
systems  serving  large  sections  of  the  country. 

In  the  main,  the  existing  freight  and  passenger  asso- 
ciations are  reorganized  forms  of  those  that  were  estab- 
lished in  the  seventies  and  eighties,  and  the  larger  organ- 
izations may  readily  be  grouped  according  to  the  terri- 
torial classification  of  railroads  already  presented.  (1) 
The  ^ew  England  roads  have  a  passenger  association, 
but  no  corresponding  freight  organization.  (2)  The 
Trunk  Line  Association  has  the  same  membership  it  has 
had  in  the  past.  West  from  Buffalo  and  Pittsburg  to 
Chicago  is  the  territory  of  the  Central  Freight  and  Cen- 
tral Passenger  Associations.  Besides  the  Trunk  Line 
Association  in  the  East,  there  is  the  Middle  States  Freight 
Association,  which  is  concerned  with  the  joint  business 
of  the  Central  Atlantic  States.  (3)  South  of  the  Poto- 
mac and  Ohio  and  east  of  the  Mississippi  the  most  influ- 
ential bodies  are  the  Associated  Railways  of  Virginia 
and  the  Carolinas,  the  Southeastern  Freight,  and  the 
Southeastern  Passenger  Associations,  the  Southeastern 
Mississippi  Valley  Association,  and  the  Southern  Freight 


250  AMERICAN  RAILWAY  TRANSPORTATION 

Association.  These  organizations  cover  the  field  once 
occupied  by  the  Southern  Railway  and  Steamship  Asso- 
ciation. (4)  In  the  Southwest  are  the  Southwestern  Pas- 
senger Bureau  and  the  Southwestern  Tariff  Committee. 
(5)  The  Middle  West  has  the  Western  Trunk  Line  Com- 
mittee, the  Western  Passenger  Association,  and  the 
Trans-Missouri  Freight  Bureau.  (6)  The  traffic  to  and 
from  the  Pacific  coast  is  supervised  by  the  Transconti- 
nental Freight  Bureau  and  the  Transcontinental  Passen- 
ger Association.  In  each  of  these  six  sections  there  are 
several  other  traffic  associations  less  influential  than  those 
just  noted;  only  the  more  important  ones  are  included 
in  this  list. 

During  and  since  1898  the  consolidation  of  railroads 
has  proceeded  with  unprecedented  rapidity.  That  this 
must  have  greatly  changed  interrailway  relations  is  obvi- 
ous. The  causes  of  this  rapid  consolidation  have  been  in 
part  those  which  have  operated  generally  throughout  the 
business  world  during  the  past  few  years.  In  production, 
even  more  strikingly  than  in  transportation,  the  large 
organization  has  been  supplanting  the  small  one  in  order 
that  business  might  be  expanded,  expenses  reduced,  and 
profits  increased.  There  has,  moreover,  been  a  close  con- 
nection between  the  rapidity  of  consolidation  during 
recent  years  and  the  great  prosperity  that  has  prevailed 
since  1898.  Prosperity  called  for  expansion  in  all  lines 
of  business,  and  supplied  the  surplus  capital  needed  for 
the  enlargement  of  plants  and  equipment,  and  for  finan- 
ciering the  consolidations  that  have  accompanied  indus- 
trial expansion.  Prosperity  was  not  a  cause  of  consolida- 
tion, but  was  a  favoring  condition. 

In  the  case  of  railroads,  certain  special  causes  have 
operated  to  hasten  consolidation.  The  foregoing  discus- 
sion of  the  nature  of  interrailway  competition  and  of  the 
provisions  and  effects  of  the  laws  passed  to  restrict  rail- 


PRESENT  INTERRAILWAY  RELATIONS  251 

way  cooperation  has  indicated  what  these  special  causes 
are.  Since  the  rivalry  of  railroads  to  secure  competi- 
tive business  tends,  unless  artificially  restrained,  to  carry 
the  rates  in  that  business  down  nearly  to  the  extra  costs 
incurred  in  carrying  that  traffic,  a  large  measure  of  unity 
of  action  becomes  necessary  if  the  railway  companies  are 
to  keep  their  properties  on  a  solvent  and  profitable  basis, 
and  are  to  protect  the  public  interests  by  keeping  their 
rates  stable  and  relatively  reasonable  as  between  different 
persons,  competing  localities,  and  the  various  kinds  of 
commodities. 

For  many  years  the  rival  companies  sought  to  prevent 
competition  from  producing  its  Undesirable  results  by 
rate  and  traffic  agreements;  but  when  it  became  imprac- 
ticable for  the  railroads,  either  directly  or  indirectly,  to 
effect  such  agreements,  the  only  available  course  of  action 
was  to  secure  unity  of  management  by  such  consolidations 
as  would  tend  to  divide  the  field.  Undoubtedly  railway 
consolidations  would  have  taken  place  and  the  strong 
system  would  have  continued  to  become  larger  had  the 
interstate  commerce  law  permitted  pooling  and  had  the 
courts  not  held  the  antitrust  law  to  apply  to  rate  agree- 
ments; but  the  incentives  to  consolidation  would  have 
been  less  urgent  and  the  process  would  probably  have 
been  slower. 

The  consolidations  are  being  brought  about  in  four 
ways :  by  purchase,  by  lease,  by  means  of  stock  holdings, 
and  by  "  community  of  interest  "  in  the  management  of 
distinct  companies.  Among  the  conspicuous  instances  of 
purchases  are  the  sale  of  the  Mobile  and  Ohio  to  the 
Southern,  the  Lake  Shore  to  the  'New  York  Central,  the 
Central  Kailroad  of  New  Jersey  to  the  Eeading,  the 
Burlington  to  the  Northern  Pacific  and  Great  Northern, 
and  the  Western  Maryland  to  the  Wabash  interests.  In 
some  cases  the  purchases  have  been  made  because  of  the 


252  AMERICAN  RAILWAY  TRANSPORTATION 

previous  competition  with  the  line  bought,  and  sometimes 
because  the  acquisition  of  the  line  would  alter  the  condi- 
tions of  competition  with  some  other  rival  system.  The 
purchase  is  sometimes  effected  by  exchanging  stocks  of 
the  purchasing  company  for  the  securities  of  road  bought, 
but  more  often  bonds  have  been  used  to  make  the  pay- 
ments. In  either  case  there  has  been  a  large  increase  in 
capitalization. 

In  some  States  the  laws  do  not  permit  a  railroad  to 
buy  out  a  competing  line.  In  those  States,  however,  con- 
solidation by  lease  is  usually  possible.  Most  consolida- 
tions in  'New  England  (notably  the  absorption  of  the  Bos- 
ton and  Albany  by  the  ISTew  York  Central,  and  of  the 
Fitchburg  by  the  Boston  and  Maine)  have  been  by  lease. 
The  Great  Northern  system  and  many  others  have  been 
built  up  by  lease.  The  tendency  of  late  with  several 
systems  has  been  to  change  leases  into  ownership,  where 
the  law  permits  such  action.  The  advantages  of  securing 
control  by  lease  are  that  no  new  securities  need  to  be 
issued,  and  that  if  the  period  of  the  lease  is  not  made 
unduly  long,  there  is  an  opportunity  from  time  to  time  to 
readjust  the  financial  relations  of  the  two  companies. 
The  advantages  of  purchase  of  the  acquired  road  are 
that  absolute  control  for  all  time  is  secured,  and  that 
the  several  parts  of  the  system  built  up  by  purchase  are 
more  firmly  united.  The  system  becomes  more  of  a 
unit. 

An  easier  method  than  purchase  in  fee,  or  than  leas- 
ing, of  securing  control  of  an  independent  company  is  by 
the  purchase  of  enough  of  its  capital  stock  to  be  able  to 
control  the  policy  of  its  management.  A  bare  majority 
of  the  stock  is  all  that  need  be  purchased,  and  often  a 
minority  share  will  suffice,  because  of  the  voting  efficiency 
of  a  compact  holding.  The  Pennsylvania  had  virtual 
control  of  the  Baltimore  and  Ohio  when  $40,000,000  of 


PRESENT  INTERRAILWAY  RELATIONS  253 

the  $105,000,000  of  the  stock  had  been  acquired.  The 
Union  Pacific  could  dictate  the  policy  of  the  Southern 
Pacific  by  buying  $85,000,000  of  $192,000,000  of  stock. 
The  plan  of  consolidating  railway  interests  by  stock  hold- 
ings has  long  been  followed.  In  1892  nearly  25  per  cent 
of  the  railroad  stock  was  owned  by  the  railway  compa- 
nies themselves;  the  financial  depression  following  1893 
reduced  the  corporate  holdings  to  less  than  one-fifth  of 
the  total  in  1897,  but  in  the  three  succeeding  years  they 
rose  over  $400,000,000,  and  again  became  about  one- 
fourth  of  the  entire  amount  of  stocks.  In  other  words, 
in  the  recent  consolidations  of  railroads  much  use  has 
been  made  of  the  old  method  of  stock  purchases. 

The  fourth  method  of  securing  unity  of  control  is  a 
device  of  recent  invention.  It  is  called  "  community  of 
interest,"  by  which  is  meant  making  some  of  the  directors 
or  officials  of  one  company  members  of  the  boards  of 
directors  of  other  companies.  Usually,  but  not  always, 
there  is  also  a  community  of  ownership,  the  principal 
owners  of  one  company  becoming  financially  interested  in 
other  and  rival  roads — i.  e.,  the  "  community  of  interest  " 
usually  involves  community  both  in  ownership  and  in 
management.  This  plan  of  securing  harmonious  action 
among  rival  interests  was  well  illustrated  in  the  con- 
struction of  the  Board  of  Directors  of  the  E'orthern 
Pacific  in  1901.  The  Great  Northern  and  Union  Pacific 
were  each  trying  to  secure  control  of  the  l^orthern  Pa- 
cific. The  struggle  also  involved  the  control  of  the  Bur- 
lington system,  and  thus  concerned  the  interests  of  the 
Chicago  and  ITorthwestern  system,  a  competitor  of  the 
Burlington  having  close  traffic  relations  with  the  Yan- 
derbilt  or  New  York  Central  system.  The  Chicago,  Mil- 
waukee and  St.  Paul,  another  competitor  of  the  Burling- 
ton, and  a  road  closely  connected  with  the  Pennsylvania 
system,  was  also  interested  in  the  outcome  of  the  contest. 


254  AMERICAN  RAILWAY  TRANSPORTATION 

The  rival  parties  placed  their  interests  in  the  hands  of 
J.  P.  Morgan,  who  settled  the  struggle  by  placing  on 
the  directorate  of  the  Northern  Pacific  the  president  of 
the  Great  Northern,  the  chairman  of  the  Executive  Com- 
mittee of  the  Union  Pacific,  a  director  of  the  Chicago, 
Milwaukee  and  St.  Paul,  a  director  of  the  Chicago  and 
Northwestern,  and  a  vice-president  of  the  Pennsylvania 
Railroad. 

When  the  Pennsylvania  purchased  a  controlling  inter- 
est in  the  Chesapeake  and  Ohio,  the  board  of  directors 
was  so  changed  as  to  make  place  not  only  for  certain 
officials  of  the  Pennsylvania  road,  but  also  for  representa- 
tives of  the  New  York  Central  system,  which  was  invited 
to  share  in  the  new  management  of  the  Chesapeake  and 
Ohio.  This  community  of  interest  policy  has  been  so  gen- 
erally followed  since  the  beginning  of  1898  that  most  of 
the  prominent  railroad  directors  and  capitalists  are  mem- 
bers of  several  boards  and  financially  interested  in  nu- 
merous companies,  the  purpose  of  this  being  to  secure 
more  harmonious  relations  among  rival  companies  with- 
in each  of  the  territorial  groups  of  roads  described  in 
Chapter  Y. 

The  interrailway  relations  since  the  close  of  1898  have 
been  unusually  harmonious.  There  have  been,  however, 
several  instances  of  rate-cutting.  In  the  autumn  of  1900 
the  cutting  of  rates  was  largely  indulged  in  to  secure  west- 
bound business  from  the  north  Atlantic  section.  In 
1901  the  competition  of  the  lake  lines  with  the  trunk 
lines  for  the  grain  trade  led  to  rate-cutting;  a  war  over 
passenger  fares  from  the  Missouri  River  to  California 
was  threatened,  freight  rates  between  the  Missouri  River 
and  the  Southwest  were  said  to  "  have  been  very  much 
demoralized"  during  the  early  summer;  in  the  section 
north  of  the  Ohio  River  concessions  to  shippers  and  devia- 
tions from  rates  prevailed  on  traffic  from  the  South;  and 


PRESENT  INTERRAILWAY  RELATIONS  255 

doubtless  there  were  many  other  instances  of  discrimina- 
tions and  rate-cutting.  The  investigations  of  the  Inter- 
state Commerce  Commission  in  1901  brought  to  light  the 
fact  that  packing-house  products  from  the  central  West 
to  the  Atlantic  seaboard  were  habitually  charged  from 
five  to  ten  cents  per  hundred  pounds  less  than  the  pub- 
lished tariffs.  The  commission  also  ascertained  that 
"  grain  and  grain  products  move  from  points  of  origin 
to  the  seaboard  generally  upon  secret  rates."  Among  the 
rate  disturbances  of  1902  may  be  mentioned  the  one  in 
July  among  the  roads  competing  for  the  traffic  of  Louis- 
ville, Memphis,  and  New  Orleans. 

For  over  five  years,  beginning  in  the  summer  of  1893, 
the  variations  from  published  rates  were  frequent  and 
discriminations  were  general.  The  report  of  the  Inter- 
state Commerce  Commission  for  1898  declared  that  "  a 
large  part  of  the  business  at  the  present  time  is  trans- 
acted upon  illegal  (other  than  the  published)  rates.  In- 
deed, so  general  has  this  rule  become  that  in  certain 
quarters  the  exaction  of  the  published  rate  is  the  ex- 
ception." 

The  condition  of  affairs  prevailing  in  1898  was 
changed  by  the  return  of  highly  prosperous  times,  which 
greatly  increased  the  traffic  of  all  the  roads,  and  by  the 
influence  for  stability  exerted  by  the  community  of  inter- 
est in  railway  management.  This  latter  force  may  be 
expected  to  continue  and  become  stronger  as  time  goes 
on,  for  the  process  of  consolidation  will  certainly  proceed, 
and  the  policy  of  community  in  ownership  and  manage- 
ment has  probably  come  to  stay.  During  the  seasons  and 
years  of  abundant  traffic,  the  railway  companies,  by  vir- 
tue of  their  closer  relationship,  will  probably  be  able  to 
prevent  serious  rate  w^ars;  but,  judging  from  what  has 
occurred  since  1899,  their  control  over  rates  will  not  be 
sufficient  to  prevent  either  open  or  secret  discriminations. 


256  AMERICAN  RAILWAY  TRANSPORTATION 

The  recent  situation  as  regards  rate-cutting  among  rival 
roads  gives  no  assurance  that  charges  can  be  kept  alto- 
gether stable  when  the  present  prosperity  shall  give  wslj 
(as  it  must  sooner  or  later)  to  a  period  of  business  depres- 
sion. As  consolidation  proceeds,  and  the  community  of 
interest  becomes  more  general,  the  stronger  will  be  the 
forces  which  make  for  harmony  in  interrailway  relation; 
but  the  conditions  of  1898  are  not  yet  remote  enough  in 
time  to  warrant  the  assumption  that  they  can  not  be 
repeated. 

The  foregoing  analysis  of  the  present  and  probable 
interrelations  of  railways  suggests  that  pooling  is  not  so 
necessary  for  the  control  of  railway  rivalry  as  it  formerly 
was.  If  consolidation  had  reached  the  stage  of  a  complete 
division  of  the  field,  or  territorial  grouping  of  the  rail- 
roads of  the  United  States,  there  would  be  no  occasion  for 
pooling  of  traffic  to  secure  stable  rates;  but  consolidation 
will  not  reach  that  point  for  some  considerable  time.  It 
IS,  moreover,  desirable  that  nothing  should  be  done  to 
quicken  the  process  of  consolidation.  The  public  will 
doubtless  be  confronted  with  the  accomplished  grouping 
of  railroads  territorially  quite  as  soon  as  it  is  able  to  cope 
with  the  problem  of  Government  regulation  which  that 
situation  will  present. 

EEFERENCES    FOR    FURTHER   READII^G 

Report  of  the  Industrial  Commission,  vol.  xix,  pp.  304-348. 

Langstroth,  C.  S.,  and  Sttlz,  W.  Railway  Cooperation,  1899.  This 
volume  is  No.  15  of  the  Series  in  Political  Economy  and  Public 
Law,  publications  of  the  University  of  Pennsylvania. 

Hadley,  a.  T.  Railroad  Transportation.  Chapter  VI,  Competition 
and  Combination  in  Practise. 

CooLEY,  T.  M.  Popular  and  Legal  View  of  Traffic  Pooling.  This 
paper  appeared  in  the  Railway  Review,  January  8,  1887,  and  is 
republished  in  the  volume  entitled  Compendium  of  Transporta- 
tion Theories,  edited  by  C.  C.  McCain. 


PRESENT  INTERRAILWA?  RELATIONS  257 

Knapp,  M.  a.  Some  Observations  on  Railroad  Pooling,  1896.  A 
paper  in  vol.  viii  of  the  Annals  of  the  American  Academy  of 
Political  and  Social  Science. 

Newcomb,  H.  T.     Railway  Economics,  1898,  pp.  130-142. 

The  literature  on  railway  combinations  and  pooling  is  voluminous, 
a  brief  but  good  bibliography  of  which  is  contained  in  the  volume  by 
Langstroth  and  Stilz  on  Railway  Cooperation.  The  six  references 
above  cited  present  the  history  and  theory  of  the  subject  very  satis- 
factorily. 


18 


CHAPTEK    XVIII 

MONOPOLY    AND    COMPETITION    IN    THE    RAILWAY    SERVICE 

The  railroad  service  of  the  present  and  future  is  one 
that  must  be  performed  by  large  corporations,  among 
which  cooperation  is  necessary.  Not  only  in  the  man- 
agement of  their  joint  traffic,  but  quite  as  much  in  the 
regulation  of  their  competitive  business,  experience  shows 
that  the  railroad  companies  must  work  together  if  the 
property  invested  in  railroads  is  to  be  protected  against 
"  ruinous  competition,"  and  if  the  public  is  to  receive 
an  adequate  service  at  rates  that  do  not  unjustly  discrim- 
inate between  persons,  places,  or  classes  of  traffic.  In 
spite  of  State  and  Federal  laws  to  enforce  competition 
among  railroads,  and  possibly  to  some  extent  because  of 
those  laws,  the  companies  have  sought  unceasingly  to 
increase  the  efficiency  of  their  cooperation. 

The  forces  which  control  industrial  organization, 
whether  in  transportation  or  in  manufacturing,  are  bring- 
ing about  consolidation  with  unprecedented  rapidity,  and 
the  method  of  regulating  interrailway  rivalry  now  most 
favored  is  that  of  community  of  interest  in  the  ownership 
or  the  management  of  competing  lines.  The  consolida- 
tions in  process  are  working  out  a  territorial  grouping 
of  the  railroads  of  the  United  States  that  will  eventually 
accomplish  a  fairly  distinct  division  of  the  field.  How 
soon  this  grouping  will  be  fully  completed,  and  to  what 
extent  the  legalization  of  pooling  would  retard  the  move- 
258 


MONOPOLY  AND  COMPETITION  259 

ment,  is  conjectural;  but  there  can  be  little  doubt  as  to 
the  final  outcome  of  the  present  tendencies. 

To  what  extent  will  the  extension  of  community  of 
interest  and  the  progress  of  territorial  grouping  estab- 
lish monopoly  conditions  in  the  transportation  service? 
This  is  a  question  to  which  a  clear  answer  is  desired  bj* 
every  thoughtful  person.  Private  monopoly  is  abhorrent 
to  our  sense  of  right.  It  runs  counter  both  to  our  feel- 
ings of  what  is  just  and  to  the  legal  principles  in  which 
those  feelings  find  expression.  If  the  cooperation  of  inde- 
pendent railroads  by  pooling  or  otherwise  or  the  consolida- 
tion of  their  management  by  means  of  a  community  of 
interest  or  by  the  absorption  of  the  weaker  lines  by  the 
stronger  systems  confers  monopoly  powers  of  an  oppressive 
character  upon  the  corporations  which  thus  unite,  the 
protection  of  the  public  interests  demands  either  that  the 
cooperation  or  consolidations  should  be  prevented,  or,  if 
their  prohibition  is  not  possible,  that  the  relations  of 
the  railroad  companies  with  each  other  and  with  the  pub- 
lic should  be  so  regulated  as  to  limit  the  exercise  of 
monopoly  powers.  The  scope  and  limitations  of  monop- 
oly and  competition  in  railway  management  must  be  un- 
derstood and  kept  in  mind  in  considering  railroad  charges 
and  the  questions  of  Government  regulation. 

It  is  customary  for  those  who  have  not  studied  the 
subject  carefully  to  associate  monopoly  with  large  cor- 
porations or  combinations  of  capital,  and  to  assume  that 
the  consolidation  of  independent  companies  is  brought 
about  mainly  to  establish  a  monopoly.  As  a  matter  of 
fact,  the  concentration  of  the  control  either  of  capital  or 
of  productive  forces  may  create  a  monopoly  or  it  may 
not;  and  if  monopoly  powers  are  secured,  they  may  be 
either  complete  or  only  partial. 

The  two  leading  motives  for  the  substitution  of  the 
large  railroad  or  industrial  corporations  for  the  smaller 


260  AMERICAN  RAILWAY  TRANSPORTATION 

ones  are  (1)  to  reduce  the  expenses  by  means  of  the 
greater  economy  of  doing  business  on  a  large  scale;  and 
(2)  to  secure,  if  possible,  the  power,  either  absolute  or 
partial,  of  fixing  the  prices  paid  by  the  purchasing  public. 
The  first  of  the  two  purposes  is  always  alleged  to  be  the 
one  sought  for  by  those  concerned  in  any  particular  con- 
solidation, and  usually  expenses  can*  be  cut  down  by 
placing  several  small  concerns  under  one  control,  although 
this  is  not  always  possible,  because  thef  supervision  of  the 
affairs  of  a  large  business  can  not  be  so  close  and  so  per- 
sonal as  can  those  of  a  small  undertaking. 

Any  producer  or  carrier,  whether  an  individual,  a 
corporation,  or  a  combination  of  corporations,  who  has 
the  power  to  ^x  the  price  which  the  buyer  must  pay 
possesses  a  monopoly.  The  monopoly  power  is  the  power 
to  fix  the  price.  An  individual  or  a  combination  having 
full  power  to  fix  the  purchaser's  price  possesses  a  complete 
monopoly.  In  some  businesses  the  producer's  power  is 
absolute  only  in- parts  of  his  business;  in  other  parts  the 
forces  which  fix  prices  are  beyond  his  control;  such  a 
producer  has  a  partial  monopoly.  But  whether  the  mon- 
opoly is  partial  or  complete,  the  essence  of  monopoly  is 
the  power  to  control  the  price;  and  a  business  enterprise, 
whether  large  or  small,  is  monopolistic  to  the  extent  that 
those  who  manage  it  have  control  over  the  prices  which 
"the  buyer  must  pay. 

In  a  certain  sense  the  producer  never  has  the  sole 
power  to  fix  the  price,  even  though  he  may  be  the  only 
person  from  whom  the  commodity  or  service  in  his  con- 
trol can  be  secured,  because  he  must  always  consult  the 
nature  of  the  purchasers'  wants  and  their  ability  to  pay. 
If  the  possessor  of  a  monopoly  charges  more  than  any 
buyer  is  willing  to  pay,  no  sales  will  be  made ;  if  the  prices 
are  fixed  higher  than  any  considerable  percentage  of 
possible  buyers  can  afford  to  give,   the  market  will  be 


MONOPOLY  AND  COMPETITION  261 

largely  restricted.  This  is  equivalent  to  saying  that  the 
consumers  or  users  are  the  ones  who  fix  the  limit  beyond 
which  charges  can  not  go;  but  if  all  or  the  larger  share 
of  the  supply  required  by  purchasers  can  be  obtained  only 
from  one  person  or  combination  of  producers,  those  who 
sell  can  compel  those  who  buy  to  pay  all  they  are  willing 
to  give  rather  than  go  without  the  commodity  or  service 
desired.  The  price  fixed  under  such  conditions  is  a  mon- 
opoly price  pure  and  simple.  Those  who  sell  charge 
what  they  think  will  yield  them  the  maximum  profits  on 
their  total  business. 

A  familiar  example  of  a  monopoly  is  the  Standard  Oil 
Company.  It  does  not  own  or  control  all  the  oil-wells 
in  the  United  States,  but  by  having  possession  of  four- 
fifths  or  more  of  the  supply,  it  effectually  controls  the 
oil  market  of  the  country.  The  price  which  consumers 
must  pay  for  petroleum  is  determined  by  the  Standard 
Oil  Company,  and  the  prices  are  presumably  those  that 
will  yield  largest  profits.  In  fixing  the  price  of  oil,  how- 
ever, the  market  has  to  be  carefully  studied.  The  amount 
of  oil  used  is  largely  affected  by  the  price,  and  this  is  so 
not  only  because  if  prices  are  made  unduly  high  men  will 
forego  in  part  the  advantages  and  pleasure  of  artificial 
light,  but  also  because  the  people  who  live  in  towns  and 
cities  usually  have  the  option  of  using  gas  or  electricity 
instead  of  petroleum  oil.  This  explains  why  the  price 
of  illuminating  oil  steadily  declined  for  many  years^ 
when  at  the  same  time  the  Standard  Oil  Company  was 
increasing  its  control  of  the  production  and  sale  of  pe- 
troleum. 

To  determine  whether  a  railroad  corporation,  large 
or  small,  possesses  a  monopoly,  and  if  so  whether  its  mon- 
opoly is  absolute  or  partial,  it  is  necessary  to  ascertain 
whether  and  to  what  extent  the  railway  companies  act- 
ing singly  or  in  combination  can  fix  the  rates  and  fares 


262  AMERICAN  RAILWAY  TRANSPORTATION 

paid  by  the  public.  If  those  who  manage  our  railroads 
can  fix  the  charges  to  be  paid  for  their  services,  subject 
only  to  the  ability  and  willingness  of  the  public  to  pay 
the  charges,  then  the  railway  service  is  a  complete  mon- 
opoly. If,  however,  the  rates  and  fares  are  subject  to 
forces  which  the  railroad  companies  can  not  control,  even 
when  they  act  in  harmony — forces  which  keep  the  charges 
much  below  the  ability  of  the  purchaser  to  pay,  and  in 
many  instances  below  what  he  would  pay  rather  than  go 
without  the  service  desired — then  the  railroad  business 
is  not  a  complete  monopoly;  it  is  subject  to  competitive 
forces  which  prevent  it  from  becoming  more  than  a  par- 
tial monopoly.  One  purpose  of  the  discussion  of  inter- 
railway  relations  in  the  three  preceding  chapters  was  to 
show  that  the  railways  have  never  been  able  in  the  past 
to  do  more  than  restrain  or  regulate  competition;  they 
have  never  succeeded  in  eliminating  competition  among 
themselves.  Their  monopoly  has  never  been  more  than 
partial. 

In  considering  the  extent  to  which  the  railroad  serv- 
ice is  a  monopoly  and  to  what  extent  it  is  and  will  con- 
tinue to  be  competitive,  attention  must  be  given  to  the 
effect  of  competition  upon  the  charges  fixed  on  the  rail- 
roads which  are  separately  owned  but  whose  owners  co- 
operate by  pooling  or  otherwise,  and  also  the  effect  upon 
the  charges  fixed  on  the  roads  that  have  been  consolidated 
into  a  large  system  or  a  group  of  systems  serving  a  con- 
siderable section  of  the  country.  The  two  questions  to 
be  answered  are:  How  does  competition  affect  the  charges 
of  cooperating  roads,  and  to  what  extent  can  the  terri- 
torial grouping  of  railroads  eradicate  the  competition 
which  formerly  prevailed  among  associated  or  coopera- 
ting but  not  consolidated  systems? 

There  are  two  kinds  of  cooperations:  that  of  connect- 
ing roads,  and  that  of  competing  lines.     The  necessity 


MONOPOLY  AND  COMPETITION  263 

and  desirability  of  the  joint  arrangements  for  expediting 
through  traffic  are  recognized  by  everybody,  and  the  in- 
terstate commerce  law  requires  the  railroad  companies 
to  "  afford  all  reasonable,  proper,  and  equal  facilities  for 
the  interchange  of  traffic  between  their  respective  lines," 
and  the  same  law  prohibits  all  devices  intended  to  pre- 
vent the  "  carriage  of  freights  from  being  continuous  from 
the  place  of  shipment  to  the  place  of  destination."  But 
whether  the  law  did  or  did  not  require  this,  the  con- 
necting railroads  would  usually  find  it  to  their  advantage 
to  facilitate  through  traffic  as  much  as  possible. 

The  other  kind  of  cooperation  is  that  among  com- 
peting roads.  Thus  far,  the  laws  of  the  States  and  the 
Federal  Government  have  endeavored  to  prevent  unity 
of  action  among  competing  carriers.  The  laws  against 
pooling  and  against  associated  action  in  the  making  and 
maintenance  of  rates  and  fares  have  been  stringent,  and 
the  courts  have  held  that  pooling  and  associated  rate- 
making,  whether  prohibited  by  statute  or  not,  are  illegal 
at  common  law  because  they  are  "  in  restraint  of  trade." 
The  theory  underlying  these  statutes  and  this  inter- 
pretation of  the  common  law  is  that  the  cooperation 
of  rival  railroads  enables  them  to  eliminate  competition 
in  the  matter  of  rates  and  fares,  and  thus  to  deprive 
the  public  of  its  safeguard  against  monopoly  and  ex- 
tortion. 

It  is  obvious  that  the  chief  purpose  of  the  railroad 
companies  in  associating  is  to  agree  upon  the  rates  they 
will  charge  and  to  stop  bidding  against  each  other  to 
secure  traffic;  in  other  words,  the  object  of  cooperation 
is  to  stop  competition,  if  possible,  and  if  that  is  impossible, 
to  restrain  competition;  and,  as  a  matter  of  fact,  cooper- 
ation does  enable  the  railroads  in  a  large  measure,  and 
consolidation  enables  them  to  a  greater  degree,  to  remove 
the  incentive  of  the  managers  of  the  different  lines  serv- 


264  AMERICAN  RAILWAY  TRANSPORTATION 

ing  the  same  termini  or  common  territory  or  rival  regions 
of  production  to  cut  rates  to  secure  business.  To  what 
extent  do  rates  and  fares  remain  subject  to  competitive 
forces  ?  To  what  extent  do  railroad  charges  become  mon- 
opolistic ? 

Competition  among  railroads  is  carried  on  to  secure 
an  increased  traffic.  Most  kinds  of  traffic  can  be  attracted 
in  either  one  of  two  ways:  by  a  reduction  in  charges  or 
by  an  improvement  in  the  service  rendered.  Theoretic- 
ally, these  two  kinds  of  competition  are  the  same;  for 
in  each  case  the  carrier  gives  more  for  what  he  gets  and 
the  purchaser  of  the  service  receives  more  for  what  he 
pays ;  but  in  practise  these  two  ways  of  competing  operate 
differently.  Experience  has  shown  that  agreements  as  to 
charges  and  as  to  divisions  of  traffic  or  earnings  have  not 
kept  railroad  managers  from  seeking  to  attract  business 
by  improvements  in  service.  In  the  days  when  pooling 
was  general,  the  traffic  allotments  were  usually  made 
annually,  and  each  company  a  member  to  the  agreement 
sought  by  improving  the  service  offered  to  increase  its 
business,  and  thus  to  be  able  to  establish  a  claim  to  a 
larger  share  of  the  pooled  business.  But  quite  independ- 
ent of  pooling  arrangements,  every  railroad  management 
has  a  powerful  incentive  to  increase  the  traffic  of  its 
road  or  system  of  lines,  because  the  railroad  business  is 
one  in  which  the  profits  increase  more  than  proportion- 
ately to  the  enlargement  of  the  traffic.  It  is  a  business  of 
rapidly  "  increasing  returns,"  and  agreements  as  to  rates 
do  not  stop  the  operation  of  that  law,  nor  indeed  can  it  be 
done  by  the  consolidation  of  competing  roads. 

The  interrailway  competition  that  attracts  most  atten- 
tion is  that  which  occurs  in  places  served  by  two  or  more 
roads.  Some  cities  or  junctions  are  called  competitive 
points.  In  them  the  several  carriers  may  bid  more  or 
less  keenly  for  the  same  traffic,     In  fact^  however^  the 


MONOPOLY  AND  COMPETITION  265 

great  majority  of  cities  and  localities  are  served  by  only 
one  railroad,  and  if  competition  were  limited  to  junction 
points  it  would  have  comparatively  limited  scope.  Rate 
and  pooling  agreements  have  dealt  mainly  with  the  traffic 
of  "  competitive  points/'  and  consequently  have  not 
directly  concerned  the  business  of  the  great  majority  of 
places,  ndr  have  the  agreements  ever  covered  more  than 
a  minor  share  of  the  total  traffic  of  the  railroad  compa- 
nies making  them.  If  the  competitive  forces  affecting 
railway  charges  were  only,  those  operating  at  junction 
points,  the  greater  portion  of  the  railway  business  would 
be  non-competitive.  The  rivalry  of  railways  at  competi- 
tive points  has  been  only  one  of  the  safeguards  of  the 
public  against  high  charges. 

A -more  far-reaching  influence  on  rates  is  exerted  by 
what  is  termed  "  the  competition  of  markets,"  by  which 
is  meant  the  competition  in  the  same  markets  of  produ- 
cers in  different  sections  of  the  country  and  different 
parts  of  the  world.  Since  the  costs  of  transportation  have 
been  so  reduced  by  the  railroad  and  the  steamship  that 
practically  every  producer  has  the  world  for  his  market, 
the  commodities  of  many  sections  compete  in  the  same 
centers  of  distribution.  Every  railroad  is  a  joint  producer 
with  the  farmers,  the  manufacturers,  the  miners,  and 
the  lumbermen  of  the  section  served  by  th6  railroad,  the 
carrier  having  a  common  interest  with  the  man  who 
grows  or  makes  commodities  in  getting  those  commodities 
into  the  world's  markets,  and  at  a  cost  that  will  permit 
the  articles  to  be  sold  in  large  quantities. 

The  "  competition  of  the  markets "  is  not  depend- 
ent upon  the  relations  of  the  railroads  to  each  other. 
AVhether  the  carriers  act  singly  or  in  association  or  are 
consolidated  into  territorial  groups,  each  group  having 
a  single  management,  the  struggle  for  the  market  goes  on. 
The  rivalry  is  international  as  well  as  interregional  within 


266  AMERICAN  RAILWAY  TRANSPORTATION 

a  single  country;  it  is  the  struggle  which  causes  and 
accompanies  the  territorial  division  of  production. 

The  instances  of  industrial  competition  are  so  numer- 
ous and  well  known  that  only  a  few  need  be  mentioned. 
The  coal  from  Nova  Scotia  competes  in  New  England 
with  that  from  Pennsylvania  and  West  Virginia;  the 
bituminous  coal-fields  west  of  the  Alleghanies  compete 
with  each  other  and  wdth  the  anthracite  fields  east  of 
the  mountains.  Alabama  iron  competes  with  that  from 
Michigan  and  Pennsylvania  in  the  American  trade,  and 
the  iron  and  steel  and  other  manufactures  of  these  and 
other  States  are  sold  the  world  over  in  competition  with 
European  products. 

A  striking  illustration  of  the  effect  of  the  competi- 
tion of  markets  was  alluded  to  in  the  second  paragraph 
of  Chapter  XY.  The  first  long  railroad  trunk  lines  to 
be  established  in  the  United  States  were  those  running 
east  and  west  north  of  the  Potomac  and  Ohio  Rivers. 
During  recent  years  numerous  north  and  south  trunk 
lines  have  connected  the  Gulf  with  the  central  West, 
and  now  that  great  and  developing  region  uses  both  the 
Atlantic  and  Gulf  ports  as  gateways  for  its  export  and 
import  trade.  Rates  between  the  Atlantic  seaboard  and 
the  central  West  can  not  much  exceed  those  between 
the  central  West  and  Galveston,  New  Orleans,  Mobile, 
and  other  Gulf  cities. 

For  the  trade  of  the  Southern  States  there  is  a  strong 
competition  between  the  States  of  the  upper  Mississippi 
Valley  and  those  adjacent  to  our  north  Atlantic  sea- 
board. The  manufacturers  and  others  shipping  south 
from  the  north  Atlantic  States  have  the  option  of  send- 
ing their  goods  by  water  or  by  rail,  and  are  thus  able  to 
secure  more  favorable  rates  from  the  railroads  than  could 
otherwise  be  obtained.  The  railways  leading  south  from 
Illinois  and  the  surrounding  States  are  obliged  to  give 


MONOPOLY  AND  COMPETITION  267 

their  patrons  as  low  rates  as  the  Eastern  shippers  receive, 
otherwise  the  Western  producers  would  lose  their  South- 
ern markets. 

The  industrial  competition  illustrated  in  the  prece- 
ding paragraphs  applies  to  some  extent  to  the  traffic  of 
the  small  local  or  "  non-competitive  "  points  as  well  as  to 
the  shipments  to  and  from  the  large  centers  of  production 
or  distribution.  Although  the  local  shipper  is  served  by 
only  one  carrier,  he  usually  has  some  measure  of  pro- 
tection against  high  rates.  The  carrier's  monopoly  is  not 
absolute  for  several  reasons.  In  the  first  place,  it  is  to 
the  interest  of  the  railroad  company  to  give  the  local 
producer  a  rate  that  will  enable  him  to  market  his  com- 
modities with  a  profit  sufficient  to  cause  the  business  to 
expand  and  the  railroad's  tonnage  to  increase.  Further- 
more, the  local  rates  are  not  permitted  by  the  interstate 
commerce  law  and  the  laws  of  several  States  to  exceed 
the  through  rates  when  the  local  and  shorter  distance 
traffic  is  hauled  over  the  same  route  and  in  the  same 
direction  as  the  longer  distance  through  business.  The 
competitive  forces  which  bear  down  charges  at  the  places 
served  by  several  roads  indirectly  affect  the  rates  at 
local  points  having  only  one  carrier. 

Again,  no  railroad  can  safely  keep  its  local  rates 
much  higher  than  other  companies  charge  on  their  local 
business,  because  if  this  is  done  those  persons  having 
industrial'  establishments  along  the  line  of  that  road  will 
(if  their  business  is  such  that  it  can  be  moved)  transfer 
their  plants  to  the  lines  of  railroad  companies  offering 
more  favorable  rates.  If  the  industry  is  one  from  which 
the  invested  capital  can  not  be  withdrawn,  it  must  remain; 
but  the  business  will  decline  in  competition  with  the 
regions  receiving  more  favorable  rates,  and  the  railroad's 
tonnage  will  fall  off.  Every  railroad  management  is 
eager  to  have  capitalists  invest  along  its  line  of  road,  and 


268  AMERICAN  RAILWAY  TRANSPORTATION 

frequently  the  special  inducement  of  a  low  local  rate  is 
offered.  Other  things  being  equal,  that  road  will  secure 
the  greater  number  of  industries  and  have  the  more  rapid 
development  of  local  traffic  whose  local  rates  are  the 
lowest.  Railroad  companies  are  fully  aware  of  this  fact, 
and  many  of  them  have  officials,  usually  called  industrial 
agents,  whose  business  it  is  to  ascertain  what  new  indus- 
tries can  be  developed  along  the  company's  lines,  and  to 
find  the  men  who  are  able  and  willing  to  devote  their 
capital  and  energy  to  those  industries. 

Railroad  companies  classify  their  freight  by  putting 
like  kinds  of  commodities  into  the  same  class,  and  they 
are  forbidden  by  law  to  discriminate  unjustly  against 
particular  classes  of  freight;  they  are  likewise  forbidden 
to  make  unreasonable  discriminations  between  different 
shippers  and  between  different  localities;  and  while  it 
has  not  been  possible  for  the  law  to  prevent  all  unfair 
discriminations,  it  is  possible  that  the  ability  of  some 
of  the  local  industries  to  command  favorable  treatment 
has  been  of  indirect  benefit  to  the  other  industrial  enter- 
prises— those  from  which  capital  can  not  readily  be  with- 
drawn and  those  wnose  owners  have  not  obtained  the 
assurance  of  favorable  rates  as  a  condition  of  locating 
along  the  line  of  a  particular  railroad.  Industrial  compe- 
tition, through  the  influence  it  has  upon  the  mobility  of 
capital  and  upon  the  direction  taken  by  capital  seeking 
investment,  has  probably  affected  to  some  extent  the  rates 
on  nearly  all  kinds  of  local  traffic.  This  competitive  or 
regulating  factor  is  one  whose  operation  is  only  partially 
stopped  by  the  consolidation  of  roads  into  territorial 
groups.  By  combining  all  the  railroads  within  a  large 
section  of  the  country  under  one  control,  the  local  rates 
on  all  the  roads  would  probably  be  equally  favorable  or 
unfavorable;  but  still  each  road  would  have  the  same 
reasons  it  formerly  had  for  keeping  its  industries  in  a 


MONOPOLY  AND  COMPETITION  269 

flourishing  condition  and  for  striving  to  secure  new  in- 
dustries. Moreover,  if  there  were  several  groups  of  roads 
the  management  of  each  group  would  take  care  to  make 
local  rates  that  would  hold  and  attract  capital. 

The  conclusion  warranted  by  the  foregoing  analysis 
of  the  influences  affecting  railway  charges  is  that  the 
railroad  company  possesses  only  a  partial  monopoly.  If 
the  railroad  company  were  able  to  compel  its  patrons  to 
pay  all  they  would  pay  rather  than  forego  receiving  the 
transportation  services  desired,  the  company  would  pos- 
sess a  complete  monopoly.  On  the  other  hand,  if  the 
railroads  were  obliged  to  accept  only  such  rates  and 
fares  as  the  shippers  and  travelers  might  choose  to  pay, 
the  carriers  would  have  no  monopoly  power  whatever. 
As  a  matter  of  fact,  neither  the  carriers  nor  their  patrons 
possess  absolutely  the  power  of  determining  the  charges 
for  transportation.  Rates  and  fares  are  neither  the  low- 
est the  railroads  will  accept  nor  the  highest  the  public  will 
pay;  and  this  is  so  because  the  monopoly  possessed  by 
the  carrier  is  only  a  partial  one.  Railroad  charges  are 
affected  by  numerous  competitive  forces  which  are  be- 
yond the  control  of  the  railway  managers,  and  which 
prevent  transportation  charges,  in  most  instances,  from 
being  fixed  at  the  point  of  maximum  profits.  These 
competitive  forces  prevail  not  only  among  carriers,  but 
quite  as  much  in  the  industrial  world. 

The  effect  of  railway  consolidations  and  of  the  ulti- 
mate division  of  the  country  among  a  small  number  of 
powerful  railroad  corporations  will  unquestionably  in- 
crease the  power  of  those  corporations  to  restrain  the 
operation  of  the  competitive  forces  just  described.  The 
present  partial  monopoly  of  the  companies  will  become 
a  more  effective  one;  but  the  nature  of  the  competitive 
forces  is  such  that  the  railroads  can  not  secure  a  com- 
plete monopoly.    Whether  the  monopoly  power  possessed 


270  AMERICAN  RAILWAY  TRANSPORTATION 

by  the  railroad  companies  at  the  present  time,  or  at  any 
future  time,  is  a  greater  one  than  is  consistent  with  the 
welfare  of  the  public,  is  a  question  for  the  public  to  de- 
cide. The  railroad  companies  are  engaged  in  a  service 
of  a  public  nature;  if  they  possess  great  power  in  deter- 
mining transportation  charges,  it  is  the  right  and  the 
duty  of  the  Government  to  limit  that  power  by  regulative 
legislation.  It  does  not  disprove  the  necessity  for  the 
Government  regulation  of  railway  charges  to  prove  that 
the  monopoly  possessed  by  the  railroads  is  only  partial 
and  not  absolute. 

The  railroad  business  is  very  frequently  spoken  of  as 
a  "natural  monopoly.''  While  the  term  expresses  a  par- 
tial truth,  it  is  apt  to  suggest  the  idea  of  a  complete 
monopoly,  and  thus  to  convey  a  wrong  meaning.  Indeed, 
those  who  call  railroads  natural  monopolies  also  apply 
the  term  to  industrial  enterprises  whose  managers  have 
the  power  to  fix  prices  at  the  point  of  maximum  profits — 
i.  e.,  to  charge  all  the  public  will  pay  rather  than  forego 
purchasing.  It  is  better  to  call  railroads  partial  monopo- 
lies, and  to  apply  the  term  complete  monopolies  to  those 
businesses  in  which  the  seller  has  the  power  of  dictating 
prices  to  the  buyer. 

REFERENCES    FOR    FURTHER    READII^^G 

Hadley,  a.  T.     Railroad  Transportation,  chap.  iv. 
Report  of  Industrial  Commission,  vol.  xix,  pp.  355-364. 
Newcomb,  H.  T.     Railway  Economics,  chaps,  viii  and  ix. 


CHAPTEE  XIX 

THEORY  OF  RATES  AND  FARES 

The  foregoing  analysis  of  interrailway  relations  and 
of  the  scope  of  competition  and  monopoly  in  the  railroad 
service  indicates  the  conditions  under  which  carriers  act 
in  fixing  their  rates  and  fares.  It  is  the  purpose  of  this 
chapter  to  inquire  what  railway  charges  theoretically  are, 
to  consider  what  principles  are  followed  in  fixing  the 
amount  which  the  shipper  or  the  traveler  shall  pay  the 
carrier. 

The  charge  for  transportation,  or  any  other  service, 
may  in  theory  be  fixed  either  with  reference  to  the  cost 
of  the  service  to  the  agent  who  performs  the  work  or 
with  regard  to  the  value  of  the  service  to  the  recipient, 
or  the  charge  may  be  affected  by  both  the  cost  and  the 
value  of  the  service.  Abstractly  considered,  it  seems  most 
natural  to  assume  that  the  payment  for  the  service  should 
be  in  proportion  to  the  cost — that  the  carrier's  charges 
for  services  of  different  kinds  should  vary  according  to 
the  differences  in  the  costs  of  performing  the  several 
tasks.  In  reality,  however,  it  is  practically  impossible 
to  base  railroad  charges  upon  the  costs  of  the  services. 

In  discussing  the  cost  theory  of  railway  rates,  it  is 
necessary  to  keep  clearly  in  mind  what  is  meant  by  cost, 
because  the  word  is  used  with  several  meanings.  In  the 
preceding  paragraph  the  word  is  used  to  include  all  the 
expenses  chargeable  against  the  service — interest  on  the 
capital  employed,  deterioration  of  plant,  insurance,  wages, 

271 


272  AMERICAN  RAILWAY  TRANSPORTATION 

outlay  for  operating  expenses,  ordinary  business  profits, 
etc.  The  word  cost  is,  however,  frequently  used  to  mean 
only  operating  expenses,  or  the  expenses  incurred  in  using 
the  plant  to  perform  a  service.  The  railroad  is  thought 
of  as  being  in  existence  and  in  use,  and  the  costs  of  the 
services  are  considered  to  be  expenses  of  operation.  In 
this  sense  the  cost  of  each  of  the  several  services  is  its  ap- 
propriate share  of  the  aggregate  operating  expenses  caused 
by  the  performance  of  a  multitude  of  services.  The  cost 
of  a  single  service  is  such  a  part  of  the  total  operating 
expenses  as  may  be  properly  charged  against  that  service. 
Again,  the  cost  of  any  particular  service  is  often  thought 
of  as  only  the  additional  or  extra  expense  incurred  in  per- 
forming that  service — i.  e.,  the  outlay  that  would^  not 
have  been  made  had  not  the  freight  or  passenger  been 
carried.  This  is  the  sense  in  which  the  traffic  manager 
is  most  apt  to  use  the  term  when  he  is  considering  whether 
he  will  accept  or  reject  an  offer  of  freight  or  an  oppor- 
tunity to  run  an  additional  passenger  coach  or  train. 
The  traffic  manager  seeks  to  ascertain  how  much  addi- 
tional it  will  cost  to  do  this  service,  and  if  the  increase  in 
expenses  is  appreciably  less  than  the  additional  receipts 
to  be  secured,  he  will  perform  the  service  rather  than 
let  it  be  done  by  a  rival  carrier. 

In  whichever  sense  the  term  cost  is  used,  it  is  practi- 
cally impossible  for  the  railroad  official  to  ascertain  what 
are  the  costs  of  a  particular  transportation  service.  Every 
railroad  engaged  in  general  traffic  carries  thousands  of 
different  commodities ;  the  cargo  of  a  freight-train  is  usu- 
ally made  up  of  a  large  variety  of  articles,  and  frequently 
several  kinds  of  goods  are  sent  in  the  same  car.  To 
enable  the  company  to  run  a  train  or  haul  a  car,  the  road- 
way, depots,  yards,  and  all  the  different  parts  of  the 
service  have  to  be  provided.  Out  of  the  gross  receipts 
obtained  from  the  shippers  and  passengers,  the  various 


THEORY  OF  RATES  AND  FARES        273 

expenses  of  the  company  are  met;  but  no  company  is 
able  to  determine  just  what  part  of  the  expense  incurred 
by  the  several  branches  of  the  service  should  be  charged 
against  the  man  who  has  sent  a  ton  or  a  car-load  of  goods 
a  certain  distance  over  the  company^s  road,  or  against 
the  man  who  has  traveled  a  given  number  of  miles  on  the 
line.  Most  of  the  expenditures  of  a  railroad  company 
are  "joint  costs" — i.  e.,  they  are  paid  out  for  the  main- 
tenance of  the  service  as  a  whole,  and  have  little  direct 
connection  with  any  particular  act  of  transportation.  The 
tracks,  stations,  yards,  offices,  and  administrative  depart- 
ments all  assist  in  performing  every  one  of  the  activi- 
ties of  the  company.  The  revenue  obtained  from  each 
freight  and  passenger  service  performed  should,  if  pos- 
sible, be  made  to  contribute  something,  but  no  one  can 
say  just  how  much,  toward  the  joint  or  aggregate  costs 
of  maintaining  and  operating  the  transportation  organi- 
zation. 

About  as  far  as  the  traffic  official  can  go  in  measur- 
ing cost  is  to  calculate  the  expenses  of  running  a  train. 
The  outlay  for  wages  of  .train  crew,  for  fuel,  oil,  repairs, 
and  maintenance  of  cars  and  locomotives,  can  be  calcu- 
lated rather  closely,  and  thus  the  expense  of  moving  a 
particular  train  a  mile — the  "  train  mile  costs  " — can  be 
got  at  with  some  degree  of  certainty;  but  unless  the 
train  is  loaded  with  only  one  commodity  this  does  not 
enable  the  statistician  to  calculate  what  movement  ex- 
penses are  incurred  in  connection  with  each  or  any  of  the 
articles  of  freight  of  which  the  train's  cargo  is  composed. 
Besides  meeting  the  expenses  due  to  moving  the  train, 
the  receipts  from  the  traffic  carried  by  the  train  should 
contribute  a  greater  or  less  amount  toward  defraying  the 
company's  "  joint  costs,"  but  how  much  of  the  joint  ex- 
penses to  charge  against  any  particular  train  no  one  can 
determine,  much  less  can  one  decide  how  much  of  the 
19 


274  AMERICAN  RAILWAY  TRANSPORTATION 

"  joint  costs ''  are  incurred  by  each  commodity  in  the 
cargo. 

If  it  were  possible  to  ascertain  the  cost  of  performing 
a  particular  service,  and  thus  to  base  rates  and  fares  upon 
the  cost,  it  would  not  be  to  the  advantage  either  of  the 
public  or  the  carrier  to  adopt  the  cost  basis  of  charges. 
If  charges  were  portioned  among  commodities  according 
to  the  cost  of  transportation,  the  revenues  derived  from 
articles  of  small  bulk  but  of  high  value — such  as  laces, 
silks,  shoes,  etc. — would  be  much  less  than  present  re- 
ceipts, and  such  commodities  as  coal,  iron  ore,  lumber, 
grain,  salt,  and  fertilizers  would  have  to  pay  higher  rates 
than  they  are  now  charged.  To  raise  the  rates  largely 
on  the  bulky  materials  of  industry  would  so  restrict  the 
amounts  transported  as  greatly  to  limit  industry,  to  re- 
duce the  volume  of  manufactures  to  be  carried  by  the 
railroads,  and  to  impose  serious  restraints  upon  social 
progress.  The  phenomenal  industrial  advance  of  the  last 
twenty-five  years  has  been  made  possible  by  the  low  trans- 
portation rates  on  food  products  and  the  materials  of  in- 
dustry; and  these  low  charges  would  not  have  been  pos- 
sible had  not  the  articles  of  higher  value  per  bulk  paid 
more  than  their  proportionate  share  of  the  total  expenses 
of  railroad  transportation. 

If  the  value  of  the  service  received  by  the  shipper 
or  traveler  were  made  the  basis  of  railway  charges,  rates 
would  be  fixed  with  reference  to  the  value  added  to  an 
article  by  being  transported  from  one  place  to  another, 
and  fares  would  depend  on  the  values  which  passengers 
placed  upon  being  carried  certain  distances  by  rail.  If 
a  bushel  of  wheat  is  worth  60  cents  in  Minnesota  and  80 
cents  in  'New  York,  the  railroad  can  add  20  cents  to  the 
value  of  the  wheat  by  carrying  it  from  Minnesota  to 
New  York;  and  if  the  transportation  charge  were  made 
equal  to  the  entire  value  of  the  service  of  carriage  the 


THEORY  OF  RATES  AND  FARES        275 

rate  could  be  made  nearly  20  cents  a  bushel.  Likewise, 
if  the  people  desiring  to  travel  between  Philadelphia  and 
'New  York  place  an  average  estimate  of  $2.50  on  the 
value  of  riding  by  rail  between  the  two  cities,  the  fare 
can  be  made  $2.50.  It  is  evident,  however,  that  the 
value  of  the  service  in  the  passenger  business  is  not  easy 
to  ascertain.  One  man  may  prefer  to  pay  several  hun- 
dred dollars  rather  than  forego  a  quick  trip  by  rail  from 
New  York  to  Philadelphia,  while  another  person  desirous 
of  making  the  trip  may  not  consider  the  service  worth  as 
much  as  $2.50.  Commodities  have  market  values  in  all 
places  where  they  are  bought  and  sold,  and  the  excess 
in  the  price  of  an  article  in  one  market  over  the  price  in 
another  place  indicates  how  much  value  transportation 
can  add  to  the  article,  but  there  is  no  general  measure  of 
the  values  that  can  be  created  by  transporting  persons. 
All  the  railroad  company  can  do  to  ascertain  the  value 
of  its  passenger  services  is  to  watch  the  effects  of  fares  on 
the  volume  of  travel.  If  an  increase  in  fares  considerably 
reduces  the  number  of  journeys  taken,  the  fares  are  pre- 
sumably above  the  average  value  of  the  service.  Like- 
wise, if  a  large  increase  in  travel  results  from  a  reduction 
of  charges,  the  inference  would  be  that  fares  had  been  in 
excess  of  the  average  of  the  value  of  the  service.  If  the 
charges  are  based  on  the  value  of  the  service  they  may 
be  fixed  so  as  to  absorb  all  or  only  a  part  of  the  values 
created  by  changing  the  places  of  persons  and  things,  but 
in  either  case  the  charges  are  made  with  reference  to 
the  values  created,  and  not  with  regard  to  the  costs  or 
expenses  incurred  in  doing  the  work  of  transportation. 

Another  basis  for  freight  transportation  charges  may 
be  found  in  the  value  of  the  commodities  to  the  shipper. 
It  would  be  theoretically  possible  to  construct  a  schedule 
of  rates  by  fixing  the  charges  with  only  incidental  refer- 
ence either  to  the  cost  or  to  the  value  of  service,  but  with 


276  AMERICAN  RAILWAY   TRANSPORTATION  ' 

regard  primarily  to  the  absolute  and  relative  values  of 
the  articles  carried,  and  there  are  some  reasons  why  this 
would  be  desirable.  The  absolute  increase  in  the  value 
which  cheap  and  bulky  goods,  like  coal,  lumber,  iron, 
grain,  etc.,  obtain  by  transportation  is  small  per  ton  of 
weight,  as  compared  with  the  addition  to  the  value  gained 
by  a  like  quantity  of  high-priced  commodities,  such  as 
shoes  and  dry-goods.  A  ton  of  coal  worth  $2  on  the 
car  at  the  mine  may  sell  for  $3  at  the  ocean  pier,  trans- 
portation having  added  50  per  cent  to  its  value;  whereas, 
a  ton  of  silk  goods  may  be  worth  only  1  or  2  per  cent 
more  in  Chicago  than  in  Paterson,  N^.  J.  If  the  freight 
rates  are  based  on  the  value  created  by  the  transportation, 
the  shipper  of  coal  will  probably  pay  30  or  40  per  cent 
of  the  value  of  the  coal  for  getting  it  carried  to  market, 
while  the  shipper  of  silks  and  other  costly  articles  will 
possibly  pay  the  carrier  1  or  2  per  cent  of  their  value. 
Measured  in  percentages  of  the  values  of  the  commodities, 
the  value  of  the  service  is  low  for  costly  articles,  and 
high  for  cheap  and  bulky  commodities. 

To  ^x  railway  charges  somewhat  as  taxes  are  levied — 
i.  e.,  on  the  value  of  the  articles  carried — would  be  an 
equitable  method.  The  carrier  would  secure  his  gross 
receipts,  according  to  this  principle,  by  taxing  the  pro- 
ducers of  grain  a  certain  per  cent  of  its  value,  and  the 
various  manufacturers  and  other  shippers  certain  percent- 
ages of  the  values  of  their  goods.  The  rate  of  assessment 
on  the  producers  of  bulky  articles  would  necessarily  be 
higher  than  the  rates  imposed  on  shippers  of  costly  goods, 
but  the  effect  of  the  application  of  this  principle  would  be 
to  make  the  freight  charge  on  high-priced  goods  more 
than  they  would  be  if  made  according  to  the  cost  or  value 
of  the  service,  and  to  make  rates  on  bulky  commodities 
lower.  Whether  the  rates  of  assessment  imposed  upon 
different  classes  of  commodities  were  relatively  just  would 


THEORY  OF  RATES  AND  FARES        2T7 

be  a  question  to  be  determined  in  the  first  instance  by  the 
carriers  and  shippers,  but  also  a  question  upon  which  the 
state. would  have  the  last  word,  because  the  state  is  the 
final  judge  of  the  reasonableness  of  all  transportation 
charges. 

The  railway  ofiicials  who  make  the  rates  and  fares 
do  not  consciously  endeavor  to  follow  any  of  these  ab- 
stract theories  of  railroad  charges;  they  study  the  trafiic 
and  the  conditions  of  competition  under  which  it  must  be 
carried  on,  and  seek  to  "  charge  what  the  traffic  v/ill  bear." 
They  could  not  make  the  cost  of  service  their  guiding 
principle  if  they  wished;  and,  indeed,  they  have  no  desire 
to  do  so.  They  are  in  reality  concerned  with  two  things: 
what  the  one  who  receives  the  service  can  pay,  and  what 
rate  the  rival  carrier,  if  there  is  or  may  be  a  competitor, 
is  giving  or  is  likely  to  give.  In  determining  what  the 
buyer  of  transportation  can  pay,  the  chief  consideration 
is  the  value  of  the  service  to  the  shipper  or  passenger,  and 
the  intelligent  determination  of  that  question  requires 
the  exercise  of  sound  judgment.  Charging  "  what  the 
traffic  will  bear  "  seldom  justifies  the  carrier  in  exacting 
all  the  traffic  will  bear  at  the  time  the  charges  are  made, 
because  such  rates  and  fares  would  prevent  the  traffic  from 
growing  in  volume  and  variety,  and  would  thus  interfere 
with  the  future  prosperity  of  the  railroad.  How  traffic 
managers  actually  make  rates  and  fares  in  seeking  to 
charge  what  the  traffic  will  bear  is  considered  in  the  next 
chapter. 

The  chief  aims  of  the  traffic  manager  in  fixing  rates 
and  fares  are  to  obtain  a  profitable  revenue  and  to  seciire 
an  increasing  volume  of  business.  What  he  seeks  most 
of  all  to  avoid  is  a  charge  that  will  interfere  with  the 
growth  of  traffic.  He  realizes  that  railroad  transportation 
is  a  business  of  rapidly  increasing  returns,  and  he  always 
wants  more  business,  because  that  means  more  profits. 


278  AMERICAN  RAILWAY  TRANSPORTATION 

The  traffic  officials  are  not  especially  concerned  with  the 
absolute  or  relative  "  reasonableness  or  justice  '^  of  the 
charges  paid  by  different  persons  or  levied  upon  different 
classes  of  goods,  except  in  so  far  as  an  unjust  or  unrea- 
sonable charge  may  interfere  with  the  profits  or  the 
growth  of  traffic.  With  the  state,  however,  the  primary 
consideration  is  the  absolute  and  relative  justness  or 
reasonableness  of  rates  and  fares.  It  is  the  duty  of  the 
state  to  secure  to  each  person  just  treatment  by  public 
carriers.  Moreover,  this  duty  must  be  performed  in 
such  a  way  as  to  do  justice  to  the  carriers  and  to  further 
the  progress  of  society.  The  state  is,  therefore,  compelled 
to  seek  an  answer  to  the  question.  What  is  a  just  and 
reasonable  rate?  Unfortunately,  the  question  can  not  be 
answered  with  mathematical  precision.  There  is  no  gen- 
eral formula  or  rule  by  which  the  justice  of  a  rate  or 
fare  can  be  determined ;  the  state  officials  must  content 
themselves  with  analyzing  and  giving  due  influence  to  the 
considerations  that  should  have  weight  in  rate-making. 
If  the  railroads  were  owned  and  operated  by  the  Govern- 
ment, the  state's  duty  of  insuring  to  its  citizens  justice 
in  transportation  charges  would  be  a  somewhat  less  diffi- 
cult one,  but  even  then  it  would  not  be  an  easy  matter  to 
find  and  follow  the  sure  path  of  justice. 

As  long  as  the  railways  are  owned  by  private  cor- 
porations, a  rate  for  any  particular  service  can  hardly  be 
just  to  the  carrier  unless  it  equals  or  somewhat  exceeds 
the  additional  costs  incurred  in  performing  that  service — 
the  expenses  that  would  have  been  avoided  had  that  serv- 
ice not  been  rendered.  While  it  is  neither  possible  nor 
desirable  to  adjust  rates  and  fares  proportionately  to 
costs  of  service,  the  demands  of  justice  seem  clearly  to 
require  that  total  costs,  including  a  fair  profit  on  invested 
capital,  shall  be  covered  by  total  receipts,  and  that  the 
minimum  rate  or  fare  shall  cover  the  additional  oper- 


THEORY  OF  RATES  AND  FARES        279 

ating  expenses  incurred  by  the  carrier  in  performing  tlie 
particular  service  for  which  the  charge  is  made.  There 
would  be  no  theoretical  objection,  from  the  standpoint  of 
justice,  to  an  adjustment  of  charges  by  which  certain  kinds 
of  commodities  or  certain  classes  of  travel  should  be 
required  to  contribute  little  or  nothing  toward,  the  joint 
costs  or  fixed  charges,  provided  the  articles  of  high  value 
and  the  persons  who  travel  luxuriously  can  be  and  are 
assessed  rates  and  fares  that  will  yield  enough  to  pay 
the  fixed  charges  and  joint  costs;  but  charges  that  did  not 
cover  the  "  additional  '^  costs  of  operation  would  be  un- 
just to  the  railroads  and  would  work  a  detriment  to  the 
public  by  checking  the  growth  of  the  railway  mileage  and 
the  development  of  traffic. 

No  railway  charge  can  be  greater  than  the  value  the 
shipper  or  traveler  can  gain  by  securing  the  transportation 
service  desired.  A  charge  greater  than  the  value  of  the 
service  would  be  objectionable  not  so  much  because  of  its 
injustice  as  because  it  would  prevent  the  performance 
of  the  service.  No  onq  desiring  a  service  will  pay  more 
than  the  service  is  worth  to  him,  and  traffic  managers  are, 
of  course,  careful  to  keep  the  charges  below  this  maxi- 
mum point;  but  between  this  upper  limit,  set  by  the  value 
of  the  service,  and  the  minimum  charges,  fixed  by  the 
extra  costs  incurred  by  performing  a  particular  service, 
there  is  a  wide  range  through  which  rates  and  fares  can 
and  do  vary.  Where  within  this  range  the  line  of  jus- 
tice is  to  be  drawn,  where  charges  shall  be  fixed  so  as  to 
prevent  or  minimize  unjust  discriminations,  constitutes 
the  difficult  problem  of  Government  regulation.  Expe- 
rience has  shown  that  discriminations  of  a  most  detri- 
mental character  will  be  made  unless  prevented  by  Gov- 
ernment authority. 

Not  every  discrimination  is  unjust.  If  such  were  the 
case,  justice   among  shippers  would  consist  in  charging 


280  AMERICAN  RAILWAY  TRANSPORTATION 

every  person  a  like  sum  for  the  same  or  essentially  simi- 
lar services.  No  two  carriers  perform  their  services  under 
identical  circumstances.  One  railroad  may  have  easy 
grades,  few  curves,  a  traffic  of  about  equal  volume  in  each 
direction,  and  may  be  free  from  competition  with  a  water- 
route.  Another  company's  road  may  have  steep  grades 
and  sharp  curves,  and  its  traffic  may  be  carried  mainly  in 
one  direction  and  in  competition  with  a  line  of  vessels. 
It  is  reasonable  that  the  charges  over  the  second  of  these 
roads  should  be  higher  than  over  the  first.  Indeed,  so 
various  are  the  factors  affecting  the  reasonableness  of 
railroad  charges  that  the  state  can  formulate  no  general 
rule  by  which  to  test  the  reasonableness  of  all  rates  and 
fares.  In  deciding  upon  the  justice  of  charges,  each  com- 
pany and  each  class  of  traffic  must  be  considered  with 
reference  to  the  conditions  peculiar  to  the  company  and 
to  the  class  of  traffic  in  question.  In  legislation,  to  secure 
relative  justice  among  those  served  by  the  railroads,  the 
state  can  prohibit  only  what  is  embodied  in  the  third 
section  of  the  Interstate  Commerce  Act  and  make  it  un- 
lawful for  a  carrier  to  give  "  any  undue  or  unreasonable 
preference  or  advantage  to  any  particular  person,  com- 
pany, firm,  corporation,  or  locality,  or  any  particular  de- 
scription of  traffic."  The  determination  of  what  consti- 
tutes an  undue  or  unreasonable  preference  must  be  left 
to  the  judgment  of  the  courts  and  expert  officials  of  the 
Government. 

In  reaching  a  decision  as  to  the  reasonableness  of 
railway  charges,  the  officers  of  the  state  are  in  duty 
bound  to  consider  the  interests  of  the  carrier,  the  indi- 
vidual shipper,  and  the  general  public.  The  carrier's 
minimum  charge  is  fixed  by  the  "  extra "  cost  due  to 
performing  the  service  in  question;  the  shipper's  maxi- 
mum payment  is  the  value  of  the  service;  to  locate  the 
just   charge   lying  intermediate   between   these   two   ex- 


THEORY  OF  RATES  AND  FARES        281 

tremes,  consideration  must  be  given  to  the  cost  of  the 
service  to  the  carrier  and  the  conditions  of  competition 
under  which  the  service  is  performed,  the  value  of  the 
service  to  the  one  who  receives  it,  the  value  of  the  arti- 
cle, and  its  importance  to  the  industrial  progress  of  society. 
As  the  state  endeavors  more  consciously  and  intelligently 
to  realize  justice  in  transportation  charges,  greater  atten- 
tion will  be  given  to  the  relation  of  rates  and  fares  to 
the  interests  of  society.  The  carrier  is  entitled  to  ade- 
quate remuneration  for  his  labor,  his  capital,  and  his 
risks;  the  shipper  and  passenger  are  entitled  to  charges 
that  are  absolutely  and  relatively  reasonable;  the  public 
as  a  whole  may  justly  insist  on  such  a  distribution  of  those 
charges  among  different  kinds  of  commodities  and  classes 
of  passengers  as  will  be  most  advantageous  to  society. 
One  way,  and  probably  the  best  way,  to  accomplish  this 
"  socialization  "  of  rates  and  fares,  is  to  extend  the  taxa- 
tion principle  of  railway  charges — to  fix  rates  more  largely 
with  reference  to  the  value  of  the  commodities,  and  to 
fix  fares  so  that  they  will  more  nearly  correspond  with 
the  abilities  of  different  classes  of  travelers. 

The  socialization  of  rates  and  fares — the  collection 
of  the  total  revenue  to  which  the  carriers  are  entitled 
by  fixing  charges  primarily  with  reference  to  the  needs 
of  society,  and  only  secondarily  with  regard  to  the  cost 
or  value  of  each  particular  service — is  the  goal  toward 
which  the  public  will  be  led  in  its  efforts  to  secure  and 
enforce  justice  in  transportation  charges.  However,  jus- 
tice is  not  to  be  had  by  discovering  and  applying  any 
infallible  rule  or  theory.  Justice  is  a  question  of  judg- 
ment, and  the  factors  affecting  judgment  must  be  differ- 
ent for  each  case  decided,  and  must  change  from  time  to 
time  as  society  alters  its  ethical  standards.  The  purpose 
of  this  chapter  has  been  to  analyze  briefly  the  factors 
which  do  and  properly  may  influence  the  judgments  of 


282  AMERICAN  RAILWAY  TRANSPORTATION 

the  carrier,  the  shipper  and  passenger,  and  the  general 
public  as  regards  railway  charges. 

KEFEEENCES    FOE    FUETHEE    BEADING 

Wetl,  W.  E.     The  Passenger  TraflBc  of  Railways,  chap.  v. 

Hadley,  a.  T.     Railroad  Transportation,  chap.  vi. 

Seligman,  E.  R.  a.     Railway  Tariffs  and  the  Interstate  Commerce 

Law.     Political  Science  Quarterly,  vol.  ii.  No.  2,  1887. 
Newcomb,  H.  T.     Railway  Economics,  chaps,  x-xvi. 
Taussig,  F.  W.     A  Contribution  to  the  Theory  of  Railway  Rates. 

Quarterly  Journal  of  Economics,  July,  1891. 
AcwoRTH,  W.  M.     The  Railways  and  the  Traders,  1891,  London. 


CHAPTER    XX 

RATE-MAKING    IN    PRACTISE 

The  problem  of  making  rates  and  fares  for  the  rail- 
roads in  the  United  States  and  other  countries  where  the 
roads  are  owned  and  operated  by  private  corporations  dif- 
fers from  the  task  of  fixing  the  charges  in  countries  where 
the  government  is  the  owner  and  manager.  The  sole  aim 
of  the  corporation  is  to  secure  business  profits;  the  pur- 
poses of  the  state  are  fiscal  and  social.  The  corporation 
will  presumably  seek  to  discover  and  enforce  such  charges 
as  will  in  the  long  run  yield  maximum  net  profits  to  the 
owners  of  its  property ;  the  state  will  be  inclined  to  adopt 
rates  and  fares  no  higher  than  are  required  to  secure  a 
small  net  revenue  after  meeting  the  expenses  of  operation 
and  maintenance  and  paying  the  interest  on  the  invested 
capital.  In  a  few  instances,  as  in  the  case  of  Prussia,  state 
railroads  have  been  managed  with  a  view  to  making  them 
bear  a  considerable  share  of  the  fiscal  burdens;  but  even 
then  the  charges  levied  on  the  public  have  been  adjusted 
also  with  reference  to  the  accomplishment  of  military,  in- 
dustrial, or  other  social  aims. 

The  Government  usually  has  the  advantage  of  a 
greater  degree  of  monopoly  in  fixing  its  charges  than  is 
possessed  by  the  corporation.  However,  this  general  rule 
has  exceptions,  and  state  systems  as  well  as  private  ones 
are  subject  to  the  interregional  competition,  both  do- 
mestic and  international.  Exceptions  to  the  rule  are 
found  in  countries  where  the  state  owns  only  a  part  of  the 

283 


28tl:  AMERICAN  RAILWAY  TRANSPORTATION 

railroads  and  competes  with  the  corporations  controlling 
the  private  lines;  also  in  France,  where  each  railroad 
corporation  has  been  granted  by  the  state  a  monopoly 
within  the  section  of  country  served  by  the  company's 
lines.  The  tendency  is  to  change  partial  into  complete 
state  ownership,  because  the  accomplishment  of  the  pur- 
poses of  government  management  can  best  be  secured 
under  the  conditions  of  monopoly  resulting  from  the 
elimination  of  interline  competition.  So,  in  general,  it 
may  be  said  that,  although  the  competition  among  private 
railroads  has  many  degrees  of  intensity  and  the  power  of 
the  governments  owning  railways  to  fix  charges  is  more 
or  less  limited,  the  corporations  have  competitive  condi- 
tions and  the  state  has  monopoly  conditions  to  deal  with 
in  adjusting  rates  and  fares. 

When  the  traffic  officials  of  a  corporation  set  about 
fixing  the  rates  and  fares  to  be  charged  by  their  company 
they  must  ascertain  as  nearly  as  possible  what  the  charges 
for  various  services  ought  to  be  and  what  they  may  be. 
The  decision  of  what  ought  to  be  charged  is  affected  by 
the  theory  held  in  regard-  to  railroad  charges — whether 
the  principle  of  cost  should  be  given  as  much  weight  as 
possible,  whether  the  value  of  the  service  should  be  the 
chief  consideration,  or  whether  the  value  of  the  article 
and  the  wealth  of  the  passenger  should  be  the  determining 
factor.  The  traffic  manager  probably  does  not  endeavor 
to  apply  any  one  of  these  theories  strictly,  but  he  is  ver}^ 
careful  to  inform  himself  as  to  the  ability  of  each  arti- 
cle or  each  class  of  travelers  to  pay  the  charges  he  may 
decide  upon.  To  estimate  the  ability  of  an  article  to 
pay  freight  a  thorough  knowledge  must  be  had  of  the 
costs  of  production,  of  the  market  prices  at  different 
points,  and  of  the  nature  of  the  demand  for  the  article — 
whether  the  article  is  considered  a  necessity  or  whether 
some  other  commodity  can  readily  be  substituted  for  it. 


RATE-MAKING  IN  PRACTISE  285 

The  service  of  freight  transportation  consists  of  taking 
goods  from  the  producer  or  maker  to  the  user,  and  the 
person  who  fixes  the  rates  for  that  service  must  study  the 
conditions  of  production  and  the  nature  of  the  consumer's 
market.  Transportation  charges  must  be  such  as  will 
produce  a  net  revenue  for  the  carrier  and  will  stimulate 
the  development  of  his  traffic. 

In  addition  to  ascertaining  what  the  shipper  or  trav- 
eler is  able  to  pay,  the  rate-maker  must  know  the  condi- 
tions of  competition  to  be  met.  There  may  be  rival 
carriers  bidding  for  the  same  traffic;  or,  if  not,  probably 
the  producers  and  carriers  of  other  sections  of  the  country 
or  of  other  parts  of  the  world  are  trying  to  get  the  trade 
of  the  markets  reached  by  the  rate-maker's  road.  The 
traffic  manager  will  seek  to  charge  "  what  the  traffic  will 
bear  "  and  continue  to  increase,  and  he  will  study  all 
factors  affecting  that  problem. 

It  is  necessary  to  simplify  the  task  of  rate-making  by 
grouping  as  many  as  possible  of  the  several  thousand  kinds 
of  commodities  carried  by  the  railroad  into  ten  or  twelve 
classes,  and  charging  like  rates  on  all  articles  in  the  same 
class.  The  necessity  for  classification  becomes  greater 
with  the  increase  in  the  quantity  and  variety  of  traffic  han- 
dled. In  1886  the  classification  most  used  by  the  rail- 
roads north  of  the  Ohio  and  Potomac  enumerated  1,000 
commodities.  The  following  year  it  was  superseded  by 
Official  Classification  !N'o.  1  with  2,800  listed  articles,  and 
the  number  has  now  grown  to  three  times  that  figure.  The 
Western  and  Southern  classifications  have  expanded 
nearly  as  much  as  the  official.  This  is  due  not  only  to  the 
addition  of  new  articles  to  the  traffic  carried  by  the  rail- 
roads, but  also  to  the  more  detailed  classification  of  com- 
modities, necessitated  by  the  growing  specialization  in 
manufacturing  and  mercantile  business. 

The  technical  knowledge  required  in  classifying  com- 


286  AMERICAN  RAILWAY  TRANSPORTATION 

modities  and  the  considerations  which  determine  how 
articles  of  freight  shall  be  grouped  were  well  stated  in 
the  eleventh  Annual  Report  of  the  Interstate  Commerce 
Commission.  The  officials  entrusted  with  the  work  of 
making  classifications  "  take  into  account  whether  com- 
modities are  crude,  rough,  or  finished;  liquid  or  dry; 
knocked  down  or  set  up;  loose  or  in  bulk;  nested  or  in 
boxes,  or  otherwise  packed;  if  vegetables,  whether  green 
or  dry,  desiccated  or  evaporated;  the  market  value  and 
shippers'  representations  as  to  their  character;  the  cost 
of  service,  length  and  direction  of  haul;  the  season  and 
manner  of  shipment;  the  space  .occupied  and  weight; 
whether  in  car-load  or  less  than  car-load  lots;  the  volume 
of  annual  shipments  to  be  calculated  on;  the  sort  of  car 
required,  whether  flat,  gondola,  box,  tank,  or  special; 
whether  ice  or  heat  must  be  furnished;  the  speed  of 
trains  necessary  for  perishable  or  otherwise  rush  goods; 
the  risk  of  handling,  either  to  the  goods  themselves  or 
other  property;  the  weights,  actual  and  estimated;  the 
carrier's  risk  or  owner's  release  from  damage  or  loss. 
All  these  circumstances,  bewildering  as  they  appear  to  a 
layman,  are  comparatively  simple  to  the  expert." 

Since  1886  the  railroad  companies  have  entrusted 
the  classification  of  freight  to  the  classification  committee 
in  which  they  are  represented — the  Official,  Southern,  or 
Western.  Each  company  reserves  the  right  to  ^x  the 
rates  charged  on  each  class  of  freight,  and  in  theory  does 
independently  determine  the  rates;  although  there  is 
necessarily  a  large  degree  of  cooperation  among  com- 
peting companies  in  the  making  of  rates.  Each  company 
also  reserves  the  right  to  keep  certain  articles  out  of  the 
classification,  and  each  important  company  carries  a  large 
number  of  articles  at  "commodity  tariffs."  (Consult 
Chapter  IX.)  It  has  never  been  possible  to  include  all 
articles  within  the   classification,   but   the   railroads   are 


RATE-MAKING  IN  PRACTISE  28Y 

trying  to  reduce  the  number  of  exceptions,  and  as  the 
conditions  of  interrailway  competition  become  increas- 
ingly stable,  the  majority  of  the  commodities  now  having 
a  special  tariff  can  doubtless  be  brought  within  the  classi- 
fication, although  it  is  probable  that  some  commodities — 
petroleum,  live  stock,  fresh  fruit,  etc. — will  always  re- 
quire such  a  specialized  transportation  service  as  to  neces- 
sitate their  exemption  from  classification. 

Before  the  days  of  pooling  and  traffic  associations  each 
railroad  company  acted  independently  in  making  rates 
and  fares.  The  schedule  of  charges  was  worked  out  by 
the  officials  of  the  traffic  department  and  accepted  with 
or  without  amendment  by  the  executive  officers  of  the 
company;  but  on  competitive  business  the  rate-making 
was  in  reality  placed  by  the  company  in  the  hands  of  the 
local  agents  and  the  solicitors  of  freight,  by  giving  those 
officials  the  power  to  deviate  from  the  scheduled  charges 
if  such  action  was  necessary  to  secure  or  hold  traffic. 
Every  freight-agent  was  made  to  feel  that  he  must  get 
business,  and  the  methods  he  was  permitted  or  expected 
to  employ  were  often  objectionable.  Discriminations  of 
many  kinds  were  practised.  With  the  progress  of  rail- 
way cooperation  more  responsible  methods  of  making  and 
maintaining  rates  were  followed.  Through  their  pool- 
ing arrangements  and  traffic  associations  the  companies 
sought  to  unite  in  fixing  and  maintaining  such  charges 
as  seemed  reasonable  to  the  several  roads  concerned. 
Pooling  became  unlawful  in  1887,  and  all  rate  agree- 
ment illegal  ten  years  later.  Then,  in  theory  at  least, 
it  again  became  necessary  for  each  company  to  act  inde- 
pendently. To  secure  the  maintenance  of  rates  most  of 
the  companies  sought  to  place  the  power  of  fixing  or 
altering  rates  strictly  and  solely  in  the  hands  of  their 
higher  officers.  This  had  a  steadying  influence,  but  did 
not  make  deviations  from  published  rates  impossible  or 


288  AMERICAN  RAILWAY  TRANSPORTATION 

improbable.  A  vice-president  or  a  general  freight-agent 
can  discriminate  quite  as  effectually  as  a  station  agent. 

Charging  what  the  traffic  will  bear  means  that  no 
single  or  fixed  theory  or  principle  of  rate-making  is  fol- 
lowed, but  that  the  determination  and  maintenance  of 
charges  are  turned  over  to  certain  traffic  officials,  of 
high  or  low  rank  in  the  service,  who  are  permitted  to 
exercise  their  judgment  as  to  what  will  be  for  the  best 
interest  of  their  company.  The  interest  of  the  public  is 
of  course  consulted,  but  only  to  the  extent  that  the  effect 
of  the  charges  on  the  welfare  of  the  public  limits  or 
increases  the  prosperity  of  the  railroad.  Whether  or 
not  it  is  practicable  to  adopt  some  other  rule  of  action 
in  fixing  railroad  charges  than  that  of  charging  what  the 
traffic  will  bear  is  open  to  question ;  but  it  is  certain  that 
the  rule  as  followed  up  to  the  present  has  not  produced 
altogether  satisfactory  results.  Although  discriminations 
are  much  less  prevalent  than  they  were  during  years  of 
business  depression  preceding  1899,  they  still  exist  in 
many  forms.  This  fact  was  shown  clearly  by  the  inves- 
tigations of  the  Industrial  Commission,  and  is  also  proved 
by  the  more  specific  and  searching  inquiries  made  by  the 
Interstate  Commerce  Commission  during  the  past  few 
years.  The  causes  for  unreasonable  discriminations  are 
by  no  means  simple,  and  it  is  probable  that  the  present 
laws  against  railway  cooperation  are  in  part  the  cause 
of  the  wrong  they  are  intended  to  prevent;  but  the  fact 
remains,  whatever  the  causes,  that  charging  what  the 
traffic  will  bear  does  not  automatically  secure  justice  to 
all  parties. 

The  problem  of  fixing  passenger  charges  differs  in 
several  particulars  from  the  task  of  making  freight  rates. 
In  the  first  place,  classification  in  the  passenger  service 
is  a  simple  matter,  and  when  once  decided  upon  presents 
no  further  difficulty,  as  does  the  classification  of  freight, 


RATE-MAKINiS  IN  PRACTISE  289 

which  is  a  perennial  question  requiring  daily  considera- 
tion. Competition  in  the  passenger  service  is  less  keen 
than  in  the  freight  service,  and  of  a  different  nature. 
In  the  freight  business  it  is  the  rivalry  of  producers  and 
shippers  that  does  most  to  force  down  rates;  whereas,  in 
the  passenger  service  no  such  pressure  is  exerted.  Travel- 
ers do  not  singly,  nor  collectively,  to  much  extent,  bar- 
gain for  low  fares.  The  ordinary  ticket  represents  a  small 
purchase — averaging  barely  50  cents  in  the  United  States 
and  much  less  in  other  countries — and  there  is  but  little 
incentive  for  the  passenger  to  endeavor  to  secure  a  spe- 
cial fare.  Moreover,  the  struggle  among  railroad  compa- 
nies to  secure  the  competitive  passenger  business  is  far 
less  intense  than  is  their  effort  to  attract  freight  traffic. 
The  gross  revenue  derived  by  the  railroads  of  the  United 
States  from  their  freight  business  is  two  and  one-third 
times  the  receipts  from  the  passenger  traffic,  and  if  it 
were  possible  to  ascertain  the  net.  profits  attributable  to 
each  branch  of  the  service,  it  would  be  found  that  the 
profits  assignable  to  freight  transportation  are  more  than 
two  and  one-third  times  the  net  profits  secured  from 
carrying  passengers. 

Another  reason  why  the  railroads  are  less  eager  to 
secure  passenger  business  than  freight  traffic,  is  that  re- 
ductions in  charges — the  most  usual  way  of  increasing 
traffic — are  less  effective  in  stimulating  ordinary  travel 
than  they  are  in  increasing  freight  movement.  With  the 
exception  of  the  short-trip  excursion  travel,  the  cost  of 
the  railroad  ticket  is  but  a  part,  and  usually  the  minor 
portion,  of  the  expenses  of  the  passenger.  Most  persons 
travel  for  business  purposes,  and  the  cost  of  the  railroad 
ticket  has  but  little  weight  with  them.  There  is,  however, 
a  large  and  growing  amount  of  traveling  for  pleasure, 
and  that  is  capable  of  stimulation  by  reduction  in  rates. 
Indeed,  as  was  said  in  the  chapter  on  the  passenger  serv- 
20 


290  AMERICAN  RAILWAY  TRANSPORTATION 

ice,  the  American  railroads  have  done  much  less  than 
European  experience  has  shown  to  be  possible  in  the 
development  of  low-fare  travel. 

Though  the  struggle  of  rival  lines  for  the  passenger 
business  is  less  intense  -and  unintermittent  than  is  true 
of  the  freight  traffic,  the  railways  have  always  sought  to 
develop  their  competitive  and  non-competitive  passenger 
traffic;  but  the  intercompetition  of  American  roads  has 
done  more  to  increase  the  speed,  comfort,  safety,  and 
frequency  of  the  passenger  service  than  to  lower  the 
fares.  Passenger  charges  have  declined  somewhat,  but 
relatively  little  as  compared  with  freight  rates.  The 
average  earnings  per  passenger  per  mile  for  the  railroads 
of  the  United  States  as  a  whole  were  but  6  per  cent  less 
in  1901  than  they  were  in  1891;  whereas,  the  decline  in 
ton  mile  earnings  had  been  over  16  per  cent.  On  some 
systems  the  passenger  mile  revenue  has  risen  slightly  dur- 
ing the  past  ten  years.  The  general  effect  of  interrailway 
competition  in  the  United  States  during  the  past  twenty 
years  has  been  to  give  the  shipper  a  less  expensive  as 
well  as  a  better  service,  and  to  give  the  passenger  a  higher 
grade  of  service  without  much  change  in  fares. 

The  traffic  officials  are  usually  under  less  pressure 
in  fixing  fares  than  in  deciding  on  rates.  There  have  been 
w^ars  over  competitive  passenger  traffic,  some  of  which 
have  been  violent;  but  their  effects  have  been  slight  as 
compared  with  those  resulting  from  wars  involving 
freight  rates.  Discriminations  in  passenger  charges  have 
been  and  are  fewer  and  of  less  consequence  than  those  con- 
nected with  freight  rates.  It  has  been  easier  for  the  rail- 
ways to  cooperate  in  making  fares  than  in  making  rates. 

Transportation  charges  must  be  fixed  by  the  exercise 
of  human  judgment  rather  than  by  the  application  of 
precise  rules.  They  should  not  be  subject  to  change  by 
any  one  individual,  but  they  should  be  flexible  enough 


RATE-MAKING  IN  PRACTISE  291 

to  meet  the  requirements  of  industrial  progress.  Intelli- 
gent and  conservative  action  in  fixing  and  changing  the 
charges  would  be  promoted  if  each  company  were  to  en- 
trust all  decisions  to  a  rate  committee  of  three  or  more 
men.  When  the  charges  relate  to  joint  or  competitive 
business,  the  rate  committee  should  contain  representa- 
tives from  all  interested  companies.  This  the  law  does 
not  now  permit.  The  charges  thus  agreed  upon  should 
be  reviewable  by  public  officials,  as  most  rates  and  fares 
now  are,  at  least  in  theory.  When  thus  determined  and 
published,  the  charges  should  be  enforced  as  strictly  and 
honestly  as  are  the  fees  collected  by  the  state  for  the 
public  services  it  performs.  'No  single  traffic  official 
should  have  the  power,  or  be  permitted,  to  deviate  from 
the  established  rate,  whatever  may  be  the  competitive 
conditions  with  which  he  is  confronted.  The  committee 
that  makes  the  rate  should  alone  have  the  power  to 
change  the  rate;  its  action  should  be  made  public,  and 
no  change  should  go.  into  effect  until  the  business  inter- 
ests affected  have  had  time  to  adjust  themselves  to  the 
proposed  change.  The  ideal. adjustment  and  enforcement 
of  railway  charges  can  not  be  secured  by  means  of  legal 
penalties  alone,  although  they  may  be  helpful.  Custom 
and  ethics  are  more  potent  than  law.  The  maintenance 
of  published  rates  will  be  easy  when,  and  only  when,  the 
ethical  feelings  of  the  public  condemn  the  giving  or 
acceptance  of  a  secret  rate  for  a  transportation  service. 

The  tariff  policy  of  the  railways  of  the  United 
States  has  been  determined  almost  entirely  by  commer- 
cial considerations.  This  has  been  so  both  because  the 
roads  are  owned  by  private  corporations,  and  for  the 
reason  that  the  Government  has  as  yet  done  little  to 
require  the  companies  to  construct  their  tariffs  with  ref- 
erence to  the  accomplishment  of  political  or  social  aims. 
The  same  is  true  of  the  railroads  of  Great  Britain;  but 


292  AMERICAN  RAILWAY  TRANSPORTATION 

in  France,  altliougli  the  lines  are  owned  and  operated  by 
corporations,  the  Government  has  aided  the  companies 
largely,  and  has  influenced  their  tariff  policy  very  con- 
siderably. In  Austria  and  Hungary  the  Governments 
have  nationalized  most  of  the  railroads,  and  have  put 
in  force  a  system  of  charges  intended  to  increase  travel, 
and  to  bring  the  political  and  commercial  cities  of  the 
country  into  closer  touch  with  the  outlying  portions  of 
their  national  domain.  In  the  German  states,  where 
most  railroads  are  owned  and  managed  by  the  Govern- 
ment, rates  and  fares  have  been  fixed  with  a  view  to 
securing  a  surplus  or  net  revenue,  to  protecting  German 
industries  against  foreign  competition,  to  aid  in  the  ex- 
portation of  German  productions,  to  strengthen  the  effi- 
ciency of  the  military  forces  of  the  state,  and  to  further 
numerous  philanthropic  and  educational  aims.  In  Aus- 
tralia and  India  the  governments  have  built  roads  mainly 
to  promote  the  industrial  development  of  the  countries. 

Different  policies  have  prevailed  in  different  coun- 
tries as  regards  the  state's  policy  concerning  railway  tar- 
iffs. In  all  countries,  whether  the  railroads  are  owned 
by  the  state  or  by  corporations,  there  is  a  tendency  to 
give  increasing  weight  to  social  considerations  in  deciding 
upon  railroad  tariff  policies.  This  is  true  even  in  the 
United  States,  where,  until  within  a  few  years,  the  Gov- 
ernment permitted  the  railroad  corporations,  without 
state  interference,  to  make  such  rates  and  fares  as  they 
thought  would  promote  their  traffic  or  revenue. 

REFERENCES    FOR    FURTHER    READING 

Report  of  Industrial  Commission,  vol.  xix,  pp.  349-397. 

Weyl,   W.  E.     Causes  affecting  Rates  and  Fares.     Annals  of  the 

American  Academy  of  Political  and  Social  Science,  vol.  xi,  1898. 
Consult  also  the  references  to  Hadley  and  Seligman  and  Weyl  at  the 

close  of  the  preceding  chapter. 


CHAPTEK    XXI 

RAILWAY    CHARGES    IN    THE    UNITED    STATES   AND    OTHER 
COUNTRIES 

A  STATEMENT  of  what  railwaj  charges  now  are  and 
what  they  have  been,  and  a  comparison  of  rates  and 
fares  in  the  United  States  with  those  in  other  countries, 
might  seem  to  be  merely  a  matter  of  compilation,  but 
the  task  is  not  quite  so  simple  as  that.  In  order  to  state 
what  the  charges  now  are  and  to  compare  those  of  the 
present  with  those  of  the  past,  and  those  of  one  country 
with  those  prevailing  in  another,  two  things  are  neces- 
sary: there  must  be  some  simple  and  reliable  measure  or 
index  of  average  charges  and  the  charges  compared  must 
be  for  similar  services.  There  must  be  a  unit  for  the 
measurement  of  charges  and  the  things  compared  must 
be  alike.  Freight  charges  are  made  for  the  transportation 
of  thousands  of  commodities;  to  study  each  of  these 
charges  separately  would  be  impracticable,  and  to  deal 
with  any  considerable  number  of  commodities  individu- 
ally seriously  complicates  the  work  of  making  compari- 
sons between  the  present  and  the  past,  and  between  differ- 
ent sections  of  the  world. 

The  unit  of  distance  in  railway  charges  is  the  mile 
in  English-speaking  countries,  and  the  index  or  measure 
of  general  freight  rates  is  the  average  receipt  per  ton 
per  mile.  For  the  passenger  service  the  index  is  the  earn- 
ing or  receipt  per  passenger  per  mile.  Although  the 
"  ton  mile  "  and  "  passenger  mile  "  earnings  are  the  best 

393 


294  AMERICAN  RAILWAY  TRANSPORTATION 

measure  of  what  railway  charges  are  or  have  been,  they 
are  only  a  very  general  index  showing  the  average  of  all 
charges  and  can  not  safely  be  used  for  making  close 
comparisons.  The  average  earnings  per  ton  per  mile  are 
determined  by  the  nature  of  the  traffic  as  well  as  by  the 
rate  charged.  An  increase  in  the  tonnage  of  bulky  low- 
rate  traffic  would  lower  the  average  ton  mile  earnings, 
although  the  charges  remained  the  same.  Indeed,  it 
would  be  possible  for  a  large  expansion  of  the  mineral 
and  other  low-class  freight  to  more  than  offset  the  effect 
of  a  slight  rise  in  rates  on  all  classes  of  traffic.  This  fact 
should  be  borne  in  mind  in  comparing  the  ton  mile  earn- 
ings'of  the  present  with  those  of  the  past.  At  the  present 
time  mineral  products,  on  which  the  rates  are  low,  make 
up  over  half  the  total  rail  tonnage  in  the  United  States, 
and  minerals  and  other  low-class  traffic  comprise  an  in- 
creasingly large  percentage  of  the  total  traffic  of  the  rail- 
roads. This  means  that  the  decline  which  has  taken  place 
in  the  average  ton  mile  earnings  has  been  due  to  changes  in 
the  character  of  the  business  as  well  as  to  a  fall  in  charges. 

Likewise,  the  average  ton  mile  earnings  in  one  coun- 
try as  contrasted  with  the  ton  mile  earnings  in  another 
may  be  for  the  transportation  of  such  different  kinds  of 
commodities  as  to  make  comparisons  of  little  value. 
Moreover,  the  services  performed  by  the  railroads  in 
different  sections  of  a  country  and  in  different  countries 
may  be  dissimilar.  In  the  United  Kingdom,  for  instance, 
the  freight  charges  usually  include  the  service  of  col- 
lecting and  delivering  the  goods — a  service  which  the 
shipper  performs  in  most  countries.  On  some  railroad 
systems  freight  moves  in  about  equal  volumes  each  way, 
while  on  other  roads  the  cars  can  be  loaded  only  one  way. 
Again,  in  the  United  States  a  passenger  may  check  150 
pounds  of  baggage  free  of  charge,  whereas  in  some 
countries  nothing  but  hand-baggage  is  taken  without  extra 


AMERICAN  AND  BLTROPBAN  RAILWAY  CHARGES    295 

payment.  In  some  sections  of  the  country  the  passenger- 
trains  have  luxurious  appointments  and  are  run  at  high 
speed,  while  in  other  sections  neither  comfort  nor  speed 
is  secured  by  the  traveler.  These,  and  numerous  other 
points  that  might  be  cited,  indicate  the  necessity  of  con- 
sidering all  railroad  charges  with  reference  to  the  service 
performed,  and  show  that  the  comparison  of  the  rates 
and  fares  of  different  times  and  places  can  suggest,  but 
not  definitely  measure,  the  temporal  and  local  variations 
in  transportation  charges. 

Passenger  fares  in  the  United  States  range  from  about 
a  cent  a  mile  for  some  kinds  of  "  commutation  "  tickets 
up  to  4  and  5  cents  a  mile  in  the  sparsely  settled  and 
mountainous  sections  of  the  country.  The  average  rev- 
enue per  passenger  per  mile  for  all  the  railroads  in  the 
United  States  during  the  year  ended  June  30,  1901,  was 
2.013  cents,  which  was  5  per  cent  more  than  it  was  two 
years  before,  and  was  but  6  per  cent  less  than  in  1891. 
The  average  for  1904  promises  to  be  as  high  as  the  average 
was  ten  years  earlier. 

Fares  in  European  Countries 

The  standard  passenger  fares  in  England  since  1897 
have  been  2  pence  per  mile  for  the  first-class,  li  penny 
for  the  second-class,  and  1  penny  for  the  third — about 
4,  2^,  and  2  cents  per  mile  for  the  respective  classes. 
There  are  numerous  special  kinds  of  tickets  sold — return- 
trip,  tourist,  season,  and  military  and  working  men's  tick- 
ets— at  a  reduction  of  from  20  to  50  per  cent  from  the 
standard  charges.  The  sale  of  special  and  commutation 
tickets  to  stimulate  travel  is  a  favored  policy  of  the 
English  railroads.  There  are  no  statistics  showing  the 
average  receipts  per  passenger  mile  in  England,  but  the 
amount  is  probably  less  than  a  penny  or  2  cents. 

The  standard  fares  in   Prussia   are   3.06   cents  per 


296  AMERICAN  RAILWAY  TRANSPORTATION 

mile  first-class,  2.3  cents  second-class,  1.53  cents  third- 
class,  and  0.77  cent  fourth-class  (8,  6,  4,  and  2  pfennigs 
per  kilometer)  for  ordinary  trains,  and  on  fast  trains 
3.45  cents  per  mile  first-class,  2.55  cents  second-class, 
and  1.79  cents  (9,  6f,  and  4f  pfennigs  per  kilometer). 
Fourth-class  cars  are  not  run  on  express-trains.  Return- 
tickets  are  sold  for  one  and  one-half  times  the  one-way 
charge.  Reduced  rates  are  charged  for  Sunday  tickets, 
season  tickets  for  workmen  traveling  fourth-class,  for 
soldiers,  and  for  school-children.  Baggage  to  the  weight 
of  55  pounds  may  be  taken  free  in  the  first  three  classes. 
The  average  receipts  per  passenger  mile  in  Prussia  are  only 
1^  cents.  This  low  average  is  due  to  several  facts,  one 
being  that  nine-tenths  of  the  travel  is  confined  to  the 
classes  below  the  second;  another  reason  is  that  a  large 
percentage  of  the  tickets  are  sold  at  special  rates;  while 
a  third  cause  is  that  the  railroads  of  Prussia  do  a  large 
suburban  business  that  is  handled  by  trolley  companies  in 
the  United  States. 

Passenger  fares  in  France  are  appreciably  higher  than 
in  Prussia,  but  much  lower  than  those  in  the  United 
States.  There  are  six  systems  of  roads  operated  by  pri- 
vate companies  and  one  operated  by  the  state,  and  the 
fares  and  average  receipts  vary  with  each  system.  The 
standard  fares  are  a'bout  4.7,  2.5,  and  1.6  cents  per  mile 
for  the  first,  second,  and  third  classes.  There  is  no  fourth- 
class,  and  the  rates  are  the  same  on  local  and  express 
trains.  The  average  earnings  per  passenger  per  mile  in 
1900  varied  from  1.12  cents  on  the  Northern  Railway  to 
1.32  cents  on  the  Paris,  Lyons  and  Mediterranean  road. 
The  average  passenger  mile  receipts  for  the  railways  of 
the  country  as  a  whole  are  about  1.2  cents.  Over  90  per 
cent  of  the  travel  is  in  the  third-class,  and  there  is  a  vari- 
ety of  reduced-rate  tickets  to  stimulate  trafiic.  Sixty-six 
pounds  of  free  baggage  is  allowed. 


AMERICAN  AND  EUROPEAN  RAILWAY  CHARGES     297 


In  Hungary  and  Austria  the  so-called  zone-tariff  sys- 
tem of  passenger  fares  is  in  force.  The  zone  tariff  bases 
its  charges  on  a  longer  unit  of  distance  than  the  mile  or 
kilometer.  By  Hungary's  plan  of  1889  the  charge  on  local 
traffic  is  the  same  for  all  distances  up  to  10  kilometers  (6.2 
miles)  ;  another  and  larger  charge  is  made  for  all  distances 
of  more  than  10  and  not  exceeding  20  kilometers.  A  differ- 
ent rate  is  paid  for  a  ride  from  20  to  30  kilometers  long. 
For  the  through  traffic  the  charges  are  based  on  "  zones  "  of 
different  lengths.  The  first  zone  or  distance  is  25  kilo- 
meters, the  second  and  third  each  15  kilometers.  The  first 
13  zones  comprise  a  distance  of  140  miles.  All  places  more 
than  140  miles  from  the  place  where  the  passenger  starts — 
and  the  starting-point  may  be  any  station— is  in  the  four- 

The  Original  Hungarian  Zone  Tariff.    Fares  for  Local 
and  Through  Traffic,  1889 

Fares  (including  Government  duty). 


Local  traffic: 

Zone  1  (0-6.2  miles) 

"    3(6.2-12.4) 

"     3(12.4-18.6) 

Through  traffic  : 
Zone        I  (0-15.6  miles). 
11(15.6-24.9).... 
111(24.9-34.2).... 
IV  (34.2-43.5).... 
V  (43.5-52.8).... 
VI  (52.8-62.2).... 
VII  (56.2-71.5).... 
VIII  (71.5-80.8).... 
IX  (80.8-90.1).... 
X  (90.1-99.4).... 
XI  (99.4-108.7)... 
XII  (108.7-124.4).. 
Xni  (124.4-140).... 
XIV  (over  140) 


Express-Trains. 

Cents. 


48.3 
96.6 
144.9 
193.2 
241.5 
289.8 
338.1 
386.4 
434.0 
483.0 
531.3 
579.6 
676.2 


32.2 
64.4 
96.6 
128.6 
161.0 
193.2 
225.4 
257.6 
289.8 
322.0 
354.2 
386.4 
450.8 
.^»\")  9. 


in. 


19.3 

38.6 

58.0 

77.3 

96.6 

116.0 

135.3 

154.6 

174.0 

193.2 

212.5 

231.9 

274.4 

3^0.1 


Accommodation  Trains. 

Cents. 


19.3 
25.7 
32.2 

38.6 
77.3 
116.0 
154.6 
193.2 
232.5 
270.6 
309.2 
348.0 
386.4 
425.0 
464.0 
521.6 
5.9.6 


9.7 
14.2 
19.3 

25.7 
51.5 
77.2 
103.0 
128.8 
154.5 
180.3 
206.0 
231.8 
257.6 
283.3 
309.1 
347.7 
88G.4 


in. 


6.4 

9.7 

12.9 

16.1 
32.2 

48.3 

64.4 

80.5 

96.6 

112.7 

128.8 

144.9 

161.0 

177.1 

193.2 

225  4 

257.6 


298  AMERICAN  RAILWAY  TRANSPORTATION 

teenth  zone,  and  the  fare  is  the  same  for  all  trips  over  140 
miles  long.  If  the  trip  taken  is  over  a  route  that  takes  the 
traveler  through  Budapest,  the  capital  of  the  country,  the 
zones  are  counted  from  the  starting-point  only  to  Budapest, 
where  the  counting  of  zones  begins  again. 

This  tariff  was  modified  in  1903  by  adding  two  zones, 
reducing  the  width  of  the  first  five  zones  to  10,  5,  5,  7,  and 
13  kilometers,  and  by  disregarding  distance  only  beyond 
400  kilometers. 

The  charges  on  express-trains  are  20  per  cent  higher 
in  the  third-class  and  25  i^r  cent  higher  in  the  second 
and  first  classes  than  on  accommodation  trains.  The  fares 
by  this  system  are  low,  the  average  earnings  per  passenger 
mile  being  a  little  over  one  cent  (1.08  cents  in  1900). 
There  is  no  free  baggage,  nor  are  any  special  reduced-rate 
tickets  sold.  When  the  Hungarian  Government  adopted 
the  zone  system  of  fares  in  1889  the  charges  were  high 
and  the  amount  of  travel  small.  The  change  was  made  to 
stimulate  both  local  and  long-distance  travel,  and  both 
objects  were  accomplished. 

Austria  adopted  a  zone-tariff  system  in  1890  similar 
to  the  one  in  Hungary.  The  first  five  zones  are  each  10 
kilometers  long,  the  sixth  and  seventh  zones  are  15  kilo- 
meters each,  the  eighth  is  20  kilometers,  the  ninth  to 
twelfth  inclusive  each  25  kilometers,  the  thirteenth  and 
succeeding  zones  are  each  50  kilometers.  The  Austrian 
system  is  often  called  the  kreutzer  tariff,  because  the 
rates  are  based  on  a  charge  of  1  kreutzer  (0.406  cent)  per 
kilometer  for  the  third-class.  The  fares  change  with 
each  10  kilometers.  In  the  first  zone  of  10  kilometers, 
for  instance,  the  charges  are  10,  20,  and  30  kreutzers  for 
the  third,  second,  and  first  classes  on  slow  trains,  and 
15,  30,  and  45  kreutzers  for  the  three  classes  on  express- 
trains.  The  fares  for  single  tickets  are  shown  by  the 
following  table; 


AMERICAN  AND  EUROPEAN   RAILWAY  CHARGES      299 


Austrian  Zone 

Tariff  of  1890 

Kilometers. 

ACCOMMODATION  AND 
MIXED   TRAINS. 

EXPRESS-TRAINS. 

Zones. 

Third 
Class. 

Second 
Class. 

First 
Class. 

Third 
Class. 

Second 
Class. 

First 
Class. 

1 

1-  10 

11-  20 

21-  30 

31-  40 

41-  50 

51-  65 

66-  80 

81-100 

101-125 

126-150 

151-175 

176-200 

201-250 

251-300 

Kreutzer. 

10 

20 

30 

40 

50 

65 

80 
100 
125 
150 
175 
200 
250 
300 

Kreutzer. 

20 

40 

60 

80 
100 
130 
160 
200 
250 
300 
350 
400 
500 
600 

Kreutzer. 

30 

60 

90 
120 
150 
195 
240 
300 
375 
450 
525 
600 
750 
900 

Kreutzer. 
15 
30 

45 

60 

75 

98 
120 
150 
188 
225 
263 
300 
375 
450 

Kreutzer. 

30 

60 

90 
120 
150 
195 
240 
300 
375 
450 
525 
600 
750 
900 

Kreutzer, 

45 

2     . 

90 

3 

135 

4 

180 

5 

6 

225 
293 

7... 

C60 

8 

450 

9 

10 

11 

12  .. 

563 

675 
788 
900 

13.. 

1,125 
1,350 

14 

]N'o  baggage  may  be  checked  free  in  Austria,  and  this  is 
a  fact  that  should  be  kept  in  mind  in  comparing  the  rates 
of  such  countries  as  Hungary  and  Austria  with  the  United 
States  or  England.  Special  rates  made  to  parties,  to 
school-children,  and  to  officials  reduce  the  average  earnings 
per  person  per  mile  on  the  Austrian  railroad  considerably 
below  the  standard  fares — the  receipt  per  passenger  mile 
in  1900  was  0.95  cent.     Eates  rose  6  to  12  per  cent  in  1903. 

Without  going  further  into  details  regarding  other 
European  countries,  each  of  which  has  a  system  of  pas- 
senger charges  peculiar  to  itself,  the  general  statement 
may  be  made  that  the  average  passenger  fares  in  the 
leading  countries  of  Europe  are  much  lower  than  in  the 
United  States ;  are  indeed  but  one-half  to  three-fifths  those 
prevailing  in  our  country.  In  Russia  the  average  re- 
ceipts per  mile  are  only  .75  cent.  There  are  several  reasons 
why  fares  are  cheaper  in  Europe  than  with  us,  but 
the  main  reasons  are  the  density  of  the  population  and 


300  AMERICAN  RAILWAY  TRANSPORTATION 

the  large  volume  of  travel  in  most  parts  of  Europe,  and 
the  fact  that  several  different  grades  or  classes  of  service 
are  rendered  by  the  railroads.  The  roads  meet  the  large 
demand  existing  in  Europe  for  a  cheap  service  by  run- 
ning slow  trains  made  up  of  inexpensive  coaches.  About 
nine-tenths  of  the  people  travel  in  the  third,  or  a  lower, 
class,  and  most  of  the  traffic  is  handled  by  the  slow  trains. 
The  European  trains  are  lighter  than  the  American,  and 
the  seating  capacity  of  the  cars  is  better  utilized.  The 
cheapest  fares  in  the  world  seem  to  be  in  India,  where 
the  average  receipts  per  passenger  mile  are  less  than  one- 
half  a  cent,  and  this  is  because  the  people  are  willing  to 
travel  slowly,  do  not  mind  waiting  at  the  stations,  and 
are  willing  to  be  crowded  into  coaches  without  the  com- 
forts demanded  by  the  people  of  most  countries. 

Passenger  fares  have  declined  much  more  rapidly  in 
Europe  than  in  the  United  States.  The  European  rail- 
roads have  developed  the  lower  classes  of  traffic  very 
successfully.  The  trend  of  traffic  there  has  been  from 
the  higher  and  more  expensive  classes  to  the  third  and 
fourth  classes.  At  the  same  time  there  has  been  a  rapid 
increase  in  the  volume  of  travel.  In  the  United  States 
the  conditions  have  been  less  favorable  than  in  Europe 
for  the  development  of  the  passenger  traffic,  but  it  seems 
probable  that  much  more  can  be  done  than  has  yet  been 
accomplished.  When  the  railroad  companies  make  it  pos- 
sible for  the  masses  of  people  in  the  United  States  to 
travel  inexpensively,  the  volume  of  business  will  grow 

rapidly.  ^     .  ^     ^ 

Freight  Rates 

As  regards  freight  rates,  the  facts  are  quite  the  oppo^- 
site  of  those  concerning  passenger  fares.  The  charges 
for  freight  are  much  lower  in  the  United  States  than  in 
Europe,  and  the  decline  has  been  more  rapid.  The  aver- 
age revenue  per  ton  per  mile  received  by  the  railroads 


AMERICAN  AND  EUROPEAN  RAILWAY  CHARGES    30i 

in  the  United  States  as  a  whole  in  1901  was  but  three- 
fourths  of  a  cent.  Ten  years  earlier  the  average  was 
0.895,  the  decline  during  the  decade  having  been  16  per 
cent.  From  1881  to  1891  the  decrease  was  nearly  25 
per  cent.  From  1871  to  1881  the  average  fell  fully  one- 
third.  The  average  ton  mile  earning  in  1901  was  barely 
40  per  cent  that  of  thirty  years  earlier.  The  lowest 
average  was  reached  in  1899,  when  the  figures  were  0.724 
cent.  Since  then  the  prosperity  of  the  country  has  been 
such  that  the  chief  problem  with  many  American  rail- 
roads has  not  been  how  to  secure  business,  but  how  to 
handle  the  traffic  offered  to  them.  Instead  of  lowering 
rates  to  increase  shipments,  charges  have  in  some  in- 
stances been  maintained  or  advanced  to  discourage  ship- 
ments. This  situation,  however,  can  be  only  temporary; 
times  will  soon  be  normal  or  dull  again,  and  a  renewal 
of  the  downward  trend  of  rates  may  be  expected. 

The  British  statistics  do  not  show  what  the  railroads 
of  the  United  Kingdom  earn  per  ton  per  mile  for  their 
freight  service.  It  is  estimated  to  be  somewhat  more 
than  2  cents.  The  conclusion  is  not  to  be  drawn  from 
this,  however,  that  the  average  freights  are  two  and  two- 
thirds  those  in  the  United  States,  because  the  English  com- 
panies, unlike  those  in  the  United  States,  frequently  in- 
clude in  their  service  the  collection  and  delivery  of  goods 
at  the  terminals.  Freight  rates  in  the  United  Kingdom 
are  unquestionably  considerably  higher  than  in  this  coun- 
try, but  how  much  higher  can  not  be  stated. 

The  average  earnings  per  metric  ton  (2,204  pounds) 
per  mile  on  the  German  railroads  in  1899  was  about  1.42 
cents,  and  on  the  railroads  of  France  about  1.55  cents. 
The  European  freight  rates  seem  very  high  in  comparison 
with  American  charges.  In  Prussia  the  standard  rates 
per  metric  ton  per  mile  (not  including  terminal  charges) 
for  shipments  of  less  than  10  tons  are  from  4.21  cents  to 


302  AMERICAN  RAILWAY  TRANSPORTATION 

2.30  cents,  according  to  the  length  of  haul.  For  car-load 
lots  of  more  than  10  tons  the  rate  is  2.30  cents.  The 
charges  are  double  these  for  the  fast  freight,  which  in 
general  includes  both  our  express  traffic  and  our  fast 
freight  service.  The  standard  charges  in  reality  apply 
to  only  one-fifth  of  the  railroad  traffic  of  Prussia.  About 
17  per  cent  of  the  total  traffic  is  handled  at  what  are 
called  special  rates — corresponding  closely  to  our  com- 
modity tariffs.  The  remaining  63  per  cent  of  the  traffic 
receives  the  so-called  "  preferential "  tariffs,  which  are 
described  officially  to  be  "  applicable  to  agricultural  and 
industrial  products,  and  intended  to  assist  and  facilitate 
import  and  export,  and  increase  the  traffic  of  the  coun- 
try." These  preferential  tariffs  are  employed  as  a  bounty 
to  enable  certain  sections  of  Germany  to  export  their 
products;  as  an  export  bounty  on  the  trade  of  Germany 
with  the  countries  about  the  eastern  Mediterranean;  as 
an  aid  to  ship-building;  as  an  aid  to  manufactures  by 
cheap  rates  on  fuel;  and  as  a  means  of  relieving  the  dis- 
tress of  any  portion  of  the  country  that  may  suffer  from 
floods  or  bad  harvests.  In  France  the  normal  tariffs  of 
the  several  railroad  systems  are  different,  and  there  are 
special  rates  in  force  on  each  system.  The  standard  or 
normal  charges  are  particularly  high,  but  their  effect  upon 
the  average  ton  mile  earnings  of  the  companies  is  largely 
overcome  by  the  special  tariffs  which  apply  to  the  larger 
share  of  the  traffic. 

Shortly  after  the  passenger  zone-tariff  system  was 
adopted,  Hungary  and  Austria  applied  the  zone  principle 
to  the  freight  business.  Charges  are  based  on  a  unit  dis- 
tance of  10  kilometers  (6.2  miles),  the  rate  being  per  10 
kilometers  instead  of  per  single  kilometer.  The  charges 
for  long  distances  are  proportionately  less  than  for  short 
ones,  and  the  rates  vary  with  the  class  and  quantity  of 
goods  shipped.     The  classification,  however,  is  a  simple 


AMERICAN  AND  EUROPEAN  RAIL\7AY  CHARGES    303 

one,  and  there  are  but  few  exceptions  to  the  classification. 
The  receipts  per  ton  mile  for  ordinary  freight  in  1900 
were  1.16  cents  on  the  Hungarian  state  roads,  and  1.30 
cents  on  the  Austrian  state  roads.  If  the  express  freight 
receipts  be  included,  the  average  will  be  raised  to  about 
1.40  cents. 

Some  of  the  causes  accounting  for  high  passenger 
fares  in  the  United  States  serve  to  explain  why  freight 
charges  can  be  low.  Long  distances  deter  travel  and 
make  the  passenger  service  expensive  for  the  carrier.  In 
a  country  where  the  population  is  relatively  sparse  there 
will  be  a  comparatively  small  amount  of  passenger  travel; 
but  if  that  population  is  engaged  in  raising  great  quanti- 
ties of  live  stock,  grain,  and  cotton,  in  cutting  lumber 
and  mining  coal  and  iron  and  other  minerals,  as  is  true 
of  the  American  people,  there  will  be  a  heavy  tonnage 
of  freight  to  be  moved  long  distances  in  large  shipments. 
The  economic  conditions  favor  as  well  as  require  low 
freight  costs  in  the  United  States.  The  average  distance 
traveled  by  a  ton  of  freight  in  the  United  States  in  1901 
was  about  252  miles.  In  Germany  the  average  haul  is 
64  miles,  in  France  about  80  miles,  on  the  Austrian  state 
railroads  80  miles,  in  Italy  about  70  miles.  The  figures 
for  the  United  Kingdom  are  not  given  in  the  statistics 
of  that  country.  The  freight  rates  on  the  bulky  traffic 
carried  by  the  American  railroads  must  be  low,  and  can  be 
low,  because  such  a  large  share  of  the  tonnage  is  shipped 
in  car-load  and  train-load  lots  hundreds  of  miles. 

Wages  are  higher  in  the  United  States  than  in  Europe, 
but  the  American  laborers  are  more  efficient  and  there 
are  fewer  employees  per  mile  of  road  in  the  United  States 
than  in  Europe.  Fuel  is  generally  cheaper  here  than 
abroad.  However,  the  most  important  causes  of  low 
rates  have  been  influences  which  have  resulted  in  the 
superior    technical    efficiency    of    the    American    freight 


304  AMERICAN  RAILWAY  TRANSPORTATION 

service  as  compared  with  that  in  European  countries. 
In  order  to  develop  tonnage  in  this  country  the  railroad 
companies  were  compelled  to  reduce  movement  costs  to 
the  lowest  possible  level.  They  were  also  spurred  to 
economy  by  the  severity  of  competition  which  in  a  vari- 
ety of  forms  has  affected  their  policy  at  all  times.  Com- 
petition has  not  been  absent  from  any  European  country, 
and  its  effects  on  freight  charges  in  such  countries  as  Ger- 
many and  Austria  are  particularly  noticeable,  but  the 
stress  of  rivalry  has  been  far  greater  in  America  than  in 
Europe. 

The  facts  presented  in  this  chapter  fully  warrant  the 
general  deduction  that  passenger  fares  are  relatively  high 
and  freight  rates  are  relatively  low  in  the  United  States 
as  compared  with  Europe;  but  the  figures  presented  for 
different  countries  in  the  above  paragraphs,  as  was  stated 
at  the  beginning  of  the  chapter,  do  not  cover  identical 
services.  The  comparisons  must  be  general  and  can  not 
be  made  closely  accurate. 

REFERENCES    FOR    FURTHER    READING 

Statistics  of  Railways  in  the  United  States.  Annual  Report  by  the 
Interstate  Commerce  Commission. 

Report  on  Prussian  Railways.  British  Diplomatic  and  Consular  Re- 
ports, No.  574,  Miscellaneous  Series,  London,  1902. 

Weyl,  W.  E,  The  Passenger  Traffic  of  Railways.  Publications  of 
the  University  of  Pennsylvania. 

Hole,  J.     National  Railways,  London,  1893,  ch.  viii. 

Report  of  Industrial  Commission,  vol.  iv,  p.  758;  vol.  ix,  pp.  137-139. 

Archiv  ftlr  Eisenbahnwesen.  [This  journal  is  the  most  satisfactory 
source  of  information  regarding  railway  earnings.] 


PAET  IV 
THE  RAILWAYS   AND  THE   STATE 


21 


CHAPTER    XXII 

PUBLIC    AID    TO    RAILWAY    CONSTRUCTION 

The  government's  relation  to  the  railroads  is  neces- 
sarily twofold:  that  of  aiding  and  of  regulating  or  con- 
trolling. The  extent  and  form  of  the  assistance  given  by 
the  state  to  railroad  building  and  operation  varies  with 
different  countries.  The  people  of  some  nations  prefer  to 
have  their  railroads  built  and  managed  directly  by  the 
government;  in  other  nations  the  preference  is  for  the 
construction  and  control  by  corporations  chartered  by  the 
state ;  but  even  in  the  latter  case  the  aid  of  the  state  is 
necessary.  The  state  must  grant  to  the  corporation  "  the 
right  of  eminent  domain"  in  order  to  enable  the  cor- 
poration to  secure  the  real  estate  required  for  its  road- 
way and  structures.  Besides  aiding  the  corporation  in 
this  manner,  the  government — local,  state,  and  national 
— has  frequently  contributed  or  advanced  a  part  of  the 
capital  required  by  the  company  for  construction  pur- 
poses, and  in  some  foreign  countries  the  state  has  guar- 
anteed to  private  investors  a  stipulated  minimum  rate  of 
interest  or  dividend  on  their  investments. 

Regulation,  likewise,  is  slight  in  some  countries  and 
complete  in  others.  Sometimes  the  railroads  are  con- 
trolled by  corporations  that  are  allowed  by  the  state  to 
manage  their  affairs  with  but  little  interference;  some 
countries  supervise  and  regulate  the  companies  in  a  de- 
tailed and  thorough  manner;  and  some  governments  oper- 
ate the  railroad  as  a  state  enterprise,  and  thus  have  abso- 

307 


308  AMERICAN  RAILWAY  TRANSPORTATION 

lute  control  OA^er  them.  The  tendency,  as  we  shall  see 
later,  is  everywhere  either  toward  a  more  careful  public 
regulation  of  private  roads  or  toward  the  nationalization 
of  the  railroads  and  their  management  by  the  gov- 
ernment. 

Aid  Given  by  the  American  States  to  Railroads 

The  railroads  in  the  United  States,  though  built 
mainly  with  private  capital,  were  aided  by  many  of  the 
States,  by  the  J^ational  Government,  and  to  a  large  ex- 
tent by  county  and  city  governments  and  by  individuals. 
The  States  began  actively  to  construct  or  aid  in  building 
railroads  in  1837,  although  a  few  of  the  States  had  given 
assistance  prior  to  that  date.  State  aid  to  railroad  build- 
ing was  a  part  of  the  policy  of  Government  aid  to  works 
of  internal  improvement.  The  construction  of  canals  and 
turnpikes,  as  has  been  noted  in  a  previous  chapter,  had 
been  assisted  by  the  States  after  1815.  When  the  rail- 
road had  shown  itself  to  be  an  efficient  transportation 
agent,  there  at  once  arose  a  demand  which  was  especially 
strong  in  the  States  whose  industrial  development  was 
least  advanced  for  a  rapid  construction  of  railways.  The 
States  responded  to  this  popular  demand  not  only  be- 
cause there  was  a  demand  for  transportation  facilities  for 
the  development  of  the  resources  of  the  country,  but  also 
because  it  was  supposed  that  the  Government  could  raise 
the  funds  for  the  construction  of  the  railroads  with  very 
little  effort.  During  the  years  which  preceded  and  fol- 
lowed the  panic  of  1837  it  was  supposed  by  many  of  the 
States  that  banking  institutions  could  create  capital.  The 
banks  were  regarded  as  institutions  by  means  of  which 
credit  could  be  extended,  and  the  faith  of  the  people  in 
the  development  of  the  resources  of  the  country  was 
such  that  they  thought  the  credit  created  by  the  banks 
could,  without  difficulty,  be  made  actual  capital.     At  the 


PUBLIC  AID  TO  RAILWAY  CONSTRUCTION         309 

time  this  fallacy  was  prevalent  the  national  revenue  from 
the  sale  of  public  lands  was  especially  large,  and  the 
United  States  Government  accumulated  between  1830 
and  1837  a  considerable  surplus,  which  it  unwisely  de- 
cided in  1837  to  distribute  among  the  States.  This  dis- 
tribution of  the  surplus  revenue  by  the  National  Govern- 
ment stimulated  the  establishment  of  unsound  banking 
institutions,  and  caused  the  States  to  go  further  and 
faster  with  their  policy  of  aiding  railroads  than  they 
otherwise  would  have  gone. 

The  assistance  given  by  the  States  to  railroad  con- 
struction most  often  took  the  form  of  the  purchase  of  the 
stocks  of  railway  corporations.  Sometimes  bonds  were 
purchased,  and  sometimes  there  was  a  donation  of  State 
funds,  either  as  cash  or  State  securities.  The  aid  given 
by  the  State  was  regarded  more  as  loans  than  as  gifts, 
but,  as  a  matter  of  fact,  the  investments  or  advances 
made  by  the  States  were  only  partly  paid  back.  Several 
of  the  States  engaged  directly  in  the  construction  of 
railroads.  Other  commonwealths,  particularly  after  1850, 
made  large  grants  of  public  lands  to  the  railroad  cor- 
porations, the  lands  thus  granted  having  been  received  by 
the  States  from  the  National  Government. 

The  amount  of  aid  given  by  the  States  to  railroads  can 
not  be  stated  precisely,  but  the  figures  available  indicate 
that  the  total  donations  were  large.  The  entire  debts 
of  the  States  in  1841  exceeded  $231,000,000.  These  debts 
had  been  contracted  partly  for  the  purpose  of  assisting 
banking  institutions,  which  had  received  not  less  than 
$50,000,000,  and  partly  for  the  construction  of  works  of 
internal  improvement.  Of  the  State  funds  used  in  pro- 
moting internal  improvements,  the  amount  paid  out  on 
canals  and  turnpikes  much  exceeded  the  amount  expended 
on  railroads.  But  the  sum  contributed  by  the  States  for 
railroads  in  the  West,  and  more  especially  in  the  South, 


310  AMERICAN  RAILWAY  TRANSPORTATION 

after  1841  was  greater  than  the  amount  given  before  that 
date.  The  State  of  Missouri,  for  instance,  which  spent 
nearly  $32,000,000  on  railroad  construction,  of  which 
sum  only  a  little  over  $6,000,000  was  ever  again  obtained 
by  the  State,  granted  very  little  aid  before  1850.  Ten- 
nessee incurred  a  debt  of  $29,234,000  by  aiding  railroads; 
of  this  sum  over  half  was  contracted  after  1860.  Korth 
Carolina  had  a  similar  experience.  Of  the  New  England 
States,  Massachusetts  was  the  only  one  that  aided  rail- 
road building,  her  assistance  amounting  to  $6,044,000. 
There  were  nineteen  States  in  all  which  gave  or  advanced 
public  funds  for  the  construction  of  railroads,  Illinois, 
Indiana,  Michigan,  Georgia,  Tennessee,  [N'orth  and  South 
Carolina,  Missouri,  Virginia,  and  Louisiana  being  those 
which  contracted  the  largest  debts  to  help  the  building 
of  railroads. 

The  aid  given  by  the  American  States  to  railroad 
building  accomplished  small  results.  In  most  of  the 
States  concerned  there  was  little  appreciation  of  the 
necessity  for  adhering  to  conservative  fiscal  methods. 
Many  of  the  enterprises  aided  by  the  States  were  of  rela- 
tively small  importance.  The  States  granted  their  credit 
lavishly,  with  little  concern  for  the  method  by  which  the 
securities  issued  were  to  be  paid.  In  due  time  it  was  dis- 
covered that  banks  could  not  create  capital,  and  that 
railroads  could  not  immediately  develop  the  resources  of 
the  sections  through  which  they  were  built,  and  that  the 
ability  of  the  States  to  raise  funds  by  taxation  did  not 
increase  so  rapidly  as  the  debts  of  the  States  were  en- 
larged. In  nearly  all  cases  the  railroads  constructed  by 
the  States  were  sold  out  to  corporations  for  but  a  small 
fraction  of  what  had  been  expended  upon  the  roads.  Sev- 
eral of  the  States,  moreover,  decided  to  repudiate  the 
debts,  and  on  the  whole  the  connection  of  the  States  with 
banking    institutions    and    with    works    of    internal    im- 


PUBLIC  AID  TO  RAILWAY  CONSTRUCTION  311 

provement  constitutes  a  regrettable  chapter  in  the  history 
of  American  finance.  The  funds  expended,  however, 
were  by  no  means  altogether  wasted.  Railroads  were  con- 
structed earlier  and  more  rapidly  than  they  could  have 
been  built  by  private  capital,  and  the  resources  in  many 
parts  of  the  country  became  available  sooner  than  would 
otherwise  have  been  the  case.  The  corporations  which  ac- 
quired the  roads  obtained  the  larger  share  of  the  benefits, 
but  the  general  public  was  assisted  to  some  extent  by  the 
lavishness  of  the  States  in  aid  of  railroad  building. 

National  Aid  to  Railroad  Construction 

The  E^ational  Government  began  assisting  railroad 
construction  later  than  the  States,  but  it  has  contrib- 
uted even  more  than  they  have  given.  Most  of  the  aid 
given  by  Congress  to  the  railroads  has  consisted  of  grants 
of  land  from  the  public  domain,  although  a  few  compa- 
nies received  large  loans  from  the  Federal  Treasury.  The 
first  extensive  grant  of  land  to  further  railroad  building 
was  made  in  1850,  when  Congress  gave  to  Illinois,  -  Ala- 
bama, and  Mississippi  about  4,000,000  acres  of  land  to 
be  used  by  those  States  in  aiding  the  construction  of  the 
Illinois  Central  and  the  Mobile  and  Ohio  lines,  by  which 
Chicago  was  to  be  connected  with  ^N'ew  Orleans  and  Mo- 
bile. During  the  next  twenty  years  about  eighty  such 
grants  were  made  to  the  States  in  the  Mississippi  Valley. 

In  aiding  the  construction  of  roads  built  within  the 
boundaries  of  the  States,  Congress  for  some  years  did  not 
donate  land  directly  to  corporations,  but  gave  the  land  to 
States  as  trustees,  which  were  to  turn  the  land  over  to 
the  railway  companies.  The  tendency  in  the  fifties  was  to 
interpret  the  Constitution  more  narrowly  than  it  has 
been  interpreted  since  the  civil  war,  and  many  persons 
questioned  whether  Congress  had  the  power  to  donate 
land  located  within  a  State   to   a  railroad  corporation. 


312  AMERICAN  RAILWAY  TRANSPORTATION 

When,  in  1862  and  later,  the  occasion  arose  for  aiding 
companies  to  huild  lines  through  the  Territories,  Congress 
did  not  hesitate  to  make  grants  directly  to  the  corpora- 
tions; and  after  the  civil  war  grants  were  made  to  com- 
panies from  lands  within  the  States. 

The  first  direct  grants  to  corporations  were  made  in 
1862  to  secure  a  road  from  the  Missouri  River  to  the  Pa- 
cific Ocean.  For  a  score  of  years  Congress  had  been  urged 
to  aid  in  constructing  a  road  to  the  Pacific,  but  action  was 
delayed  from  time  to  time,  mainly  because  of  the  rivalry 
of  the  Southern  and  Northern  States  as  to  the  route  to 
be  chosen.  After  the  Southern  States  seceded  Congress 
was  able  to  act,  and  the  civil  war  greatly  increased  the 
need  of  rail  connection  between  the  western  part  of  the 
country  and  the  section  east  of  the  Eocky  Mountains. 
Military  and  political  as  well  as  economic  reasons  then 
impelled  Congress  to  act. 

In  making  these  grants  to  railroads  the  United  States 
sought,  among  other  purposes,  to  increase  the  accessi- 
bility and  value  of  the  public  lands  not  given  away.  The 
grant  to  Illinois  for  the  Illinois  Central  Railroad — the 
first  large  one — was  the  model  followed  in  all  the  subse- 
quent donations;  some  companies  received  more  land  per 
mile  of  road  than  others  did,  but  all  the  grants  had  the 
same  general  terms.  According  to  the  Illinois  grant,  the 
railroad  company  was  given  a  right  of  way  200  feet  wide 
through  the  public  lands,  and  was  also  given  alternate 
(the  even-numbered)  sections  of  land  on  each  side  of  the 
line  for  a  distance  of  6  miles  from  the  road.  The  com- 
pany thus  secured  half  the  land  within  a  strip  12  miles 
wide,  or  6  square  miles  of  land,  for  each  mile  of  track 
built.  If  any  of  the  land  within  this  12-mile  strip  had 
previously  been  disposed  of  by  the  Government,  the  rail- 
road might  select  an  equal  area  within  15  miles  of  the 
railroad.     The  alternate  (odd-numbered)  sections  retained 


PUBLIC  AID  TO  RAILWAY  CONSTRUCTION         313 

by  the  Government  within  the  12-mile  strip  were  not 
to  be  sold  for  less  than  $2.50  an  acre.  In  the  grants 
made  at  a  later  date  a  wider  strip  of  land  was  donated, 
and  in  some  cases  the  Government  did  not  agree  to  charge 
$2.50  or  more  an  acre  for  the  sections  it  retained  within 
the  land-grant  strip. 

The  grants  made  from  1862  to  1871  to  aid  the  build- 
ing of  roads  from  the  Mississippi  and  Missouri  Rivers  to 
the  Pacific  Ocean  were  for  several  reasons  larger  than 
those  previously  made.  The  lands  given  away  were  less 
valuable  than  those  located  within  the  States  near  the 
Mississippi  River,  while  the  cost  and  difficulties  of  build- 
ing the  roads  over  the  Rocky  Mountains  would  necessarily 
be  greater  than  they  had  been  in  the  Mississippi  Valley. 
Congress,  moreover,  had  grown  more  liberal  than  it  was 
during  the  fifties.  By  the  act  of  1862,  as  amended  in 
1864,  the  Union,  Kansas,  and  Central  Pacific  Companies, 
and  the  three  other  corporations  which  undertook  to  build 
the  first  tracks  from  the  Missouri  River  to  the  Pacific 
Ocean,  were  given  10  square  miles  of  land  for  each  mile 
of  line.  The  grant  to  the  Union  Pacific,  the  company 
which  built  the  road  from  Omaha  to  Ogden,  amounted  to 
12,000,000  acres.  The  grant  to  the  Central  Pacific  Com- 
pany, which  constructed  the  track  betAveen  Sacramento, 
CaL,  and  Ogden,  was  8,000,000  acres.  The  company 
which  later  came  to  have  the  name  of  the  Kansas  Pacific 
Company  was  granted  6,000,000  acres,  and  the  other 
companies  concerned  in  building  this  first  Pacific  con- 
nection were  to  receive  nearly  7,000,000  acres.  Thus 
33,000,000  acres,  a  gift  of  an  area  considerably  larger  than 
the  State  of  Pennsylvania,  was  offered  by  Congress  to 
induce  corporations  to  build  the  first  railroad  across  the 
Western  plains  and  mountains.  In  addition  to  this  gift 
these  corporations  received  a  large  loan  of  funds  from  the 
United  States. 


314  AMERICAN  RAILWAY  TRANSPORTATION 

The  Atchison,  Topeka  and  Santa  Fe  received  a  grant 
of  3,000,000  acres  in  1863,  and  three  years  later  the 
Atlantic  and  Pacific  Railroad,  which  is  now  a  part  of  the 
Atchison  system,  received  a  grant  of  42,000,000  acres — a 
grant  of  enormous  area  but  of  relatively  small  value. 
Much  of  this  grant  reverted  to  the  United  States  by  for- 
feiture. In  1864  a  grant  of  about  as  great  area  and  of 
much  greater  value  was  made  to  the  ITorthern  Pacific. 
The  roads  now  comprised  in  the  Texas  and  Pacific  re- 
ceived nearly  23,000,000  acres,  and  the  Southern  Pacific 
obtained  14,000,000  acres.  The  grants  made  to  each  of 
the  last  four  companies  mentioned  comprised  20  sections 
of  land  per  mile  of  road  in  the  States  and  40  sections  per 
mile  in  the  Territories. 

During  the  ten  years  ending  in  1871  Congress  made 
grants  to  23  companies.  The  grants  made  between  1850 
and  1871  have  placed  at  the  disposal  of  the  railway  com- 
panies about  155,000,000  acres  of  the  public  domain — 
an  area  exceeding  five  States  like  Pennsylvania.  The 
original  grants  made  available  for  sale  by  the  railroad 
companies  a  larger  area  than  this,  but  parts  of  the  grants 
reverted  to  the  United  States,  and  less  than  155,000,000 
acres  will  actually  pass  to  the  railroads,  because  in  many 
instances  the  companies  have  not  been  able  to  comply  with 
the  conditions  imposed  in  the  grants.  The  companies 
were  granted  a  certain  number  of  sections  of  land  per  mile 
of  line  constructed,  but  could  claim  the  land  or  receive  a 
"  patent "  from  the  United  States  only  after  completing 
a  designated  mileage  of  track — 20,  25,  or  40  miles — i.  e., 
as  each  stretch  of  track  of  designated  length  was  com- 
pleted the  land  corresponding  to  that  mileage  might  be 
claimed.  The  companies  have  not  received  all  the  land 
to  which  their  work  of  road  construction  entitles  them. 
The  United  States  now  annually  gives  the  companies 
patents  to  large  amounts  of  land.    Most  of  the  companies 


PUBLIC  AID  TO  RAILWAY  CONSTRUCTION  315 

failed  to  complete  their  lines  within  the  time  fixed  by  the 
grants,  and  some  of  the  contemplated  roads  were  never 
built.  However,  a  failure  to  finish  a  road  within  the 
time  set  by  law  was  held  by  the  Supreme  Court  not  to 
work  a  forfeiture  of  the  grant  without  an  act  of  Congress 
declaring  the  grants  forfeited;  indeed,  only  about  half 
of  the  mileage  to  which  the  donations  of  land  applied 
were  completed  within  the  legal  time  limit,  and  many 
companies  were  allowed  to  continue  construction  and  to 
secure  the  land  corresponding  to  the  new  mileage  after 
the  period  set  by  law  for  securing  the  benefit  of  the  grants 
had  expired.  The  total  amount  of  land  secured  by  the 
railroads  from  the  Federal  Government  up  to  June  30, 
1902,  was  97,976,637  acres;  and  the  companies  are  en- 
titled under  their  grants  to  receive  several  million  acres 
more.  The  General  Land  Ofiice  of  the  United  States  is 
unable  to  state  just  how  many  acres  will  be  patented  in 
adjusting  all  the  grants.  The  original  grants  applied  to 
about  15,000  miles  of  railroad. 

During  the  seventies  there  developed  a  strong  popu- 
lar sentiment  against  the  granting  of  public  land  to  rail- 
road corporations,  and  an  agitation  was  started  to  influ- 
ence Congress  to  declare  all  the  land  forfeited  that  had 
not  been  earned  by  the  construction  of  lines  within  the 
time  stipulated  in  the  grants.  Congress  acted  regarding 
a  few  grants  during  the  eighties,  and  in  1890  passed  a 
law  providing  for  the  forfeiture  of  all  lands  "  opposite 
to  and  coterminous  with  the  portions  of  any  such  railroad 
not  now  completed  and  in  operation."  The  lands  now 
being  claimed  by  the  companies  are  for  mileage  finished 
prior  to  the  passage  of  that  law.  This  agitation  for  the 
repeal  of  the  land  grants  was  due  in  part  to  the  popular 
feeling  against  railroads  that  developed  in  connection 
with  the  effort  to  subject  railroad  corporations  to  public 
control;  but  the  demand  for  the  repeal  of  the  land  grants 


316  AMERICAN  RAILWAY  TRANSPORTATION 

came  mainly  because  of  the  conviction  that  the  public 
domain  should  be  disposed  of  only  to  settlers  or  "  home- 
steaders," and  in  small  tracts  of  160  acres. 

The  companies  which  built  the  first  Pacific  road  were 
aided  by  a  loan  of  United  States  funds  as  well  as  by 
donations  of  public  lands.  By  the  act  of  1862,  as  amend- 
ed in  1864,  the  United  States  Government  permitted  the 
Union  Pacific  and  Central  Pacific  and  certain  other 
smaller  companies  to  sell  United  States  thirty-year  6-per- 
cent bonds  to  secure  a  part  of  the  capital  to  be  used  in 
building  the  roads.  As  each  section  of  20  miles  was  com- 
pleted the  railroad  companies  received  these  bonds  to  the 
amount  of  "$16,000  for  each  mile  east  of  the  eastern 
base  of  the  Rocky  Mountains  and  west  of  the  western 
base  of  the  Sierra  Nevada,  $48,000  for  each  of  the  150 
miles  west  of  the  eastern  base  of  the  Rocky  Mountains 
and  150  miles  east  of  the  western  base  of  the  Sierra 
IN^evada,  and  $32,000  for  each  mile  intervening  between 
the  two  mountain  sections."  As  security  for  the  repay- 
ment of  the  loan,  the  United  States,  by  the  act  of  1864, 
took  a  second  mortgage  on  the  roads  aided.  The  compa- 
nies were  allowed  to  sell  their  own  bonds  and  to  issue 
a  first  mortgage  equal  to  the  amount  of  the  Government's 
second  mortgage.  The  United  States  expected  the  com- 
panies to  pay  the  interest  and  the  principal  of  the  Govern- 
ment loan  by  applying  5  per  cent  of  their  net  earnings 
to  that  purpose,  and  by  carrying  the  Government's  mails, 
troops,  and  military  supplies. 

The  Government  bonds  received  by  the  Union  Pacific 
Company  amounted  to  $27,236,512,  those  obtained  by 
the  Central  and  Western  Pacific  Companies  to  $27,855,- 
680,  and  those  by  the  company  now  called  the  Kansas 
Pacific  to  $6,300,000.  Two  other  companies  received 
bonds  to  the  value  of  $3,228,320,  making  the  total  sum 
originally  advanced  by  the  Government  to  the   6  com- 


PUBLIC  AID  TO  RAILWAY  CONSTRUCTION         317 

panies  $64,623,512.  The  incomes  from  the  operation 
of  these  roads  were  much  less  than  had  been  expected, 
and  the  net  earnings  were  either  non-existent  or  so  small 
that  the  companies  were  unable  to  pay  interest  on  the 
Government  bonds  they  had  received,  and  the  debts  of 
the  roads  to  the  United  States  rapidly  grew  larger.  In 
1878  Congress  passed  the  Thurman  act  providing  for  a 
sinking-fund  to  be  managed  by  the  Government  and 
requiring  larger  payments  from  the  companies;  but  the 
debts  to  the  United  States  continued  to  increase.  The 
United  States  effected  a  settlement  with  the  owners  of 
the  Union  Pacific  in  1897,  and  was  fortunate  in  obtain- 
ing the  full  amount  advanced  as  principal  and  interest, 
thus  losing  only  the  interest  on  the  interest  payments. 
The  settlement  with  the  Kansas  Pacific,  which  was  made 
in  1898,  was  less  advantageous;  the  United  States  secured 
the  return  of  the  principal  of  the  bonds  and  about  one- 
eighth  of  the  amount  paid  as  interest.  The  indebtedness 
of  the  Central  Pacific  Company,  principal  and  accumu- 
lated interest,  amounted  to  $58,812,715  at  the  beginning 
of  1899,  at  which  time  an  arrangement  was  made  whereby 
this  sum  was  funded  into  20  promissory  notes  bearing  3 
per  cent  interest,  one  note  being  payable  each  six  months 
for  ten  years.  For  many  years  it  seemed  certain  that 
the  United  States  must  lose  the  greater  share  of  the 
large  sum  it  had  loaned  to  these  companies,  and  such 
would  have  been  the  result  had  the  Government  not  had 
the  good  fortime  of  bringing  about  a  settlement  at  the 
beginning  of  a  period  of  business  prosperity.  This  ex- 
perience of  the  Government  in  aiding  private  corporations 
was  so  unsatisfactory  that  Congress  will  probably  not  soon 
care  to  repeat  the  experiment. 

In  granting  the  public  lands  and  loaning  its  bonds  to 
corporations  to  further  railroad  construction,  the  'Nsl- 
tional    Government    sought    to    accomplish    several    pur- 


318  AMERICAN  RAILWAY  TRANSPORTATION 

poses:  one  was  to  secure  better  transportation  facilities 
for  tlie  mails  and  troops  of  the  Government;  another  ob- 
ject was  to  connect  the  Mississippi  Valley  with  the  States 
beyond  the  Rocky  Mountains;  another  reason  was  the 
desire  of  the  Government  to  promote  the  settlement  of 
the  country,  and  thus  to  increase  the  wealth  and  strength 
of  the  people  of  the  United  States.  The  Government, 
moreover,  acted  as  a  landlord  with  an  immense  tract  of 
land  having  very  little  value.  A  part  of  this  large  tract 
of  land  was  given  away  in  order  that  the  land  retained 
might  possess  a  greater  value.  The  policy  of  giving  away 
the  public  domain  to  corporations  has  been  much  criti- 
cized. Unquestionably  the  United  States  was  more  lib- 
eral than  it  need  have  been,  and  if  the  public  had 
chosen  to  wait  twenty  years  the  railroads  in  the  central 
West  and  between  the  Mississippi  Valley  and  the  Pacific 
Ocean  would  have  been  constructed  by  private  capital. 
The  liberal  donations  of  public  land  caused  the  railroads 
in  that  section  of  the  country  to  be  built  earlier  than 
they  would  otherwise  have  been  constructed,  the  West 
was  settled  up  more  quickly,  and'  the  Government  has 
been  able  to  dispose  of  many  parts  of  the  domain  it  did 
not  give  away  at  an  earlier  date,  and  possibly  more  ad- 
vantageously than  they  could  have  been  sold  had  none  of 
the  land  been  given  to  the  railroad  corporations. 

As  we  now  view  the  matter  in  retrospect,  it  seems 
that  Congress  was  too  eager  to  dispose  of  the  public  lands. 
The  existence  of  an  unoccupied  public  domain  upon  which 
those  may  draw  who  are  seeking  homes  and  an  inde- 
pendent position  industrially  and  socially  is  an  advantage 
to  society  which  we  are  coming  to  appreciate  more  fully 
as  the  new  lands  available  for  settlement  are  rapidly 
decreasing  in  area,  accessibility,  and  fertility.  As  the 
question  appeared  to  Congress  from  1850  to  1870,  the 
necessity  for  greater   transportation  facilities   than   un- 


PUBLIC  AID  TO  RAILWAY  COKSTRUCTION         319 

aided  private  capital  was  disposed  to  provide  seemed  im- 
perative. The  United  States  had  a  vast  unoccupied 
domain  that  would  be  of  little  value  to  the  country  until 
settled;  and  Congress  decided  to  hasten  the  occupation 
of  the  West  by  aiding  railroad  companies.  Had  the  pol- 
icy of  land  grants  been  carried  out  in  a  more  conserva- 
tive manner,  the  results  obtained  might  probably  have 
been  secured  at  less  cost  to  the  public. 

County,  Municipaly  and  Individual  Aid  to  Railroad 
Building 

The  contributions  made  by  municipalities  and  coun- 
ties can  not  be  stated  exactly,  but  enough  figures  are 
available  to  show  that  the  total  amount  must  have  been 
large.  According  to  the  census  of  1870,  there  were  then 
outstanding  $185,000,000  of  county  ^nd  municipal  bonds 
which  had  been  issued  to  aid  railroads.  What  additional 
amount  of  bonds  had  been  paid  off  and  canceled  prior 
to  1870  is  not  known,  but  probably  the  sum  was  consid- 
erable. In  the  State  of  'New  York  the  county  and  mu- 
nicipal subscriptions  amounted  to  about  $30,000,000,  and 
in  Massachusetts  the  towns  voted  $2,350,000  toward  rail- 
road construction.  In  1873  the  Eailroad  and  Warehouse 
Commission  of  Illinois  addressed  a  circular  letter  to  each 
of  the  county  clerks  in  the  State  requesting  them  to  re- 
port how  much  aid  had  been  voted  and  issued  by  the 
counties  and  towns  to  railroads.  Replies  were  received 
from  86  of  the  102  counties  of  the  State,  and  it  was 
reported  that  in  those  86  counties  the  bonds  and  money 
voted  and  issued  equaled  $16,087,027.  This  would  indi- 
cate that  nearly  $20,000,000  of  aid  had  been  given  to  the 
railroads  by  the  local  governments  in  Illinois.  Local  aid 
to  railroads  was  general  in  all  parts  of  the  United  States, 
and  in  view  of  the  fact  that  the  counties  and  towns  of 
Illinois  and  'New  York  gave  nearly  $50,000,000,  the  total 


320  AMERICAN  RAILWAY  TRANSPORTATION 

county  and  town  aid  given  in  the  entire  country  probably 
amounted  to  several  hundred  million  dollars. 

These  large  sums  were  voted  by  the  counties  and 
towns  in  the  new  sections  of  the  country  because  their 
material  progress  depended  entirely  upon  their  securing 
access  to  markets.  People  thought  themselves  justified 
in  making  large  sacrifices  to  secure  good  transportation 
facilities  at  an  earlier  date  than  they  could  be  obtained 
by  depending  on  unaided  private  capital.  Generally 
speaking,  the  thought  was  a  correct  one,  but  the  corpora- 
tions in  some  instances  secured  larger  amounts  than  the 
public  need  have  given  to  have  secured  the  railway  desired. 
A  favored  method  by  which  companies  secured  a  large 
bonus  was  that  of  surveying  two  alternative  routes — a 
route  through  each  of  two  rival  towns— r-for  the  purpose 
of  getting  the  towns  to  bid  against  each  other  for  the 
railroad. 

The  companies  secured  capital  from  individuals  as  well 
as  from  the  counties  and  municipalities.  The  farmers 
and  merchants  living  along  the  line  of  a  proposed  road, 
particularly  in  the  central  West,  were  persuaded  to  pur- 
chase stock  of  the  corporations  proposing  to  build.  In 
some  cases  the  stocks  thus  purchased  were  good  invest- 
ments, but  in  other  instances  the  companies  were  so 
financiered  during  the  period  of  construction  that  bank- 
ruptcy and  reorganization  followed  close  after  the  com- 
pletion of  the  road,  and  partially  or  wholly  destroyed 
the  value  of  the  stocks  held  by  the  local  purchasers.  The 
persons  who  benefited  by  these  reorganizations  consisted 
largely  of  Eastern  capitalists,  against  whom  the  farmers, 
merchants,  and  business  men  in  the  towns  of  the  central 
West  came  to  feel  very  bitter.  Moreover,  having  thus 
lost  a  large  part  of  their  investments,  the  local  contribu- 
tors felt  that  they  were  entitled  to  favorable  rates,  but 
they  presently  found  that  they  were  charged  higher  rates 


PUBLIC  AID  TO  RAILWAY  CONSTRUCTION  321 

• 
and  fares  than  were  the  shippers  living  in  the  large  cities 
where  the  carriers  were  subject  to  competition.  This 
discrimination  against  the  local  shipper  intensified  the 
antagonism  of  the  public  to  the  management  of  the  rail- 
ways, and  brought  about  the  enactment  of  laws  regulating 
rates  and  fares  and  the  other  relations  of  the  railways 
to  the  public.  The  fact  that  the  public  had  aided  the 
companies  to  build  their  roads  accentuated  the  demand 
for  public  regulation. 

REFERENCES    FOR    FURTHER    READING 

Million,  J.  W.  State  Aid  to  Railways  in  Missouri.  University  of 
Chicago  Press,  1896.  [This  scholarly  volume  also  contains  a  brief 
account  of  the  aid  given  by  the  Southern  States,  pp.  196-301.] 

Scriljner's  Statistical  Atlas.  [Consult  map  and  text  regarding  land 
grants.] 

Sanborn,  J.  B.  Congressional  Grants  of  Land  in  Aid  of  Railways. 
Bulletin  of  the  University  of  Wisconsin,  No.  30,  Madison,  Wis., 
1899. 

Davis,  J.  P.  The  Union  Pacific  Railway,  1894.  [A  detailed  and 
valuable  work.] 

Crawford.     CrMit  Mobilier  of  America. 

Donaldson,  Thomas.  The  Public  Domain,  1884.  [In  this  bulky 
volume,  published  as  a  Government  document,  are  collected  most 
documents  relating  to  the  public  domain.] 

Annual  Report  of  the  Commissioner  of  Railroads.  [Especially  the  re- 
port for  1899.] 


CHAPTEE   XXIII 

RELATION   OF   THE   RAILWAYS    TO   THE    STATE    IN    THE    UNITED 
KINGDOM    AND    FRANCE 

Transportation  being  a  service  of  a  public  nature,  it 
is  the  duty  of  the  government  to  regulate  its  perform- 
ance. This  regulation  may  be  accomplished  by  state 
ownership  of  transportation  agencies  or  by  the  govern- 
mental supervision  of  those  agencies  in  the  ownership 
and  under  the  management  of  private  persons  or  cor- 
porations to  whom  the  state  may  have  entrusted  the 
business  of  transportation.  Some  transportation  agen- 
cies are  invariably  owned  by  the  government;  in  regard 
to  the  others  the  practise  of  the  different  states  varies. 
The  postal  service,  for  instance,  is  everywhere  a  state 
monopoly,  the  highways  are  usually  supplied  by  the  gov- 
ernment; but  the  telegraphs  and  railroads  are  owned 
and  operated  sometimes  by  the  state  and  sometimes  by 
chartered  corporations. 

State  ownership  gives  the  government  complete  power 
of  control;  and  the  question  of  regulating  transportation 
becomes  one  of  defining  and  adhering  to  the  proper  policy 
which  the  government  should  follow  in  managing  the  agen- 
cies which  it  owns.  However,  when  one  comes  to  analyze 
closely  the  principles  which  should  prevail  in  the  relations 
of  the  government  to  railroads  and  other  transportation  fa- 
cilities, it  becomes  evident  that  whether  the  transportation 
service  is  performed  directly  by  the  state  or  its  execution 
is  entrusted  by  the  state  to  individuals  and  to  corporations. 


STATE  REGULATION  IN  ENGLAND  AND  FRANCE  323 

it  is  equally  the  duty  of  the  state  to  make  sure  that  the 
service  shall  be  so  performed  that  the  greatest  possible 
measure  of  justice  may  be  secured  by  each  citizen.  The 
ideal  of  the  greatest  good  to  the  greatest  number  must 
everywhere  pervade  the  service ;  if  the  state  performs  the 
service  it  must  follow  that  ideal  in  its  management;  if 
corporations  act  for  the  state,  they  must  be  required  by 
the  state  to  adhere  to  that  general  principle.  Unrestrained 
individualism  in  railway  management  is  a  principle  which 
corporations  can  not  be  permitted  to  follow. 

The  history  of  the  relations  of  the  railways  with  each 
other  in  our  country,  an  account  of  which  was  given  in 
preceding  chapters,  shows  very  clearly  that  the  state 
can  not  safely  rely  upon  the  competition  of  privately 
owned  railroads  with  each  other  to  regulate  transporta- 
tion by  rail.  The  general  adherence  of  the  American 
public  to  that  fallacy  during  the  first  four  decades  of 
our  railroad  history  resulted  in  the  origin  and  develop- 
ment of  most  of  the  objectionable  practises  which  to-day 
constitute  the  so-called  "  railway  problem.''  Moreover, 
experience  also  shows  that  the  public  must  give  heed  to 
the  manner  in  which  the  state  performs  its  service  when 
the  railroads  are  owned  and  operated  by  the  Govern- 
ment. When  a  state  owns  a  part  of  the  railway  net  of 
a  country  and  competes  with  private  companies,  it  is 
tempted  to  resort  to  the  practises  commonly  adopted  by 
competing  companies.  If  the  state  manages  all  the  rail- 
way lines,  its  railway  policy  may  be  determined  with 
regard  to  the  fiscal  needs  of  the  government,  or  may  be 
made  a  part  of  a  system  of  protecting  home  industries, 
or  the  railroads  may  be  built  and  operated  so  as  to  fur- 
ther the  military  power  of  the  country.  These  may  all 
be  worthy  purposes,  but  they  prevent  the  development 
of  the  transportation  system  best  adapted  to  general 
economic  needs  of  the   country.      In   other  words,   the 


324  AMERICAN   RAILWAY  TRANSPORTATION 

state  may  not  make  the  technical  development  of  its 
railroads  and  the  increase  of  the  mileage  and  the  facili- 
ties the  first  considerations,  as  corporations  would. 

Although  some  form  of  governmental  control  of  rail- 
roads is  now  universally  recognized  to  be  a  necessity,  it 
is  by  no  means  easy  to  decide  what  form  of  control  will 
most  conduce  to  the  public  benefit.  Whether  the  regu- 
lation of  railway  transportation  by  our  Federal  Govern- 
ment and  the  States  should  take  the  form  of  the  pur- 
chase and  operation  of  the  railroads  under  their  juris- 
diction is  a  question  that  has  been  much  discussed.  It  is, 
indeed,  a  difiicult  question,  and,  before  considering  it, 
we  will  do  well  to  review  the  relation  of  the  railways  to 
the  state  in  some  of  the  larger  foreign  countries,  and  study 
our  own  experiences  as  regards  railway  regulation. 

The  state's  relation  to  railroads  may  take  one  of  four 
different  forms:  (1)  Private  ownership  and  private  opera- 
tion of  railroads,  the  state  chartering  corporations  to  act 
as  its  agents  for  the  performance  of  railroad  transporta- 
tion; (2)  private  ownership  and  government  operation, 
the  state  leasing  the  lines  from  the  corporations  which 
have  invested  the  capital  in  building  the  roads;  (3)  gov- 
ernment ownership  and  operation ;  (4)  government  owner- 
ship and  corporate  operation,  the  state  leasing  its  roads  to 
corporations.  The  workings  of  each  of  these  four  forms 
of  relationship  have  been  illustrated  by  the  experiences  of 
one  or  more  important  countries. 

Among  the  foreign  countries  that  have  followed  the 
policy  of  private  ownership  and  operation  are  the  United 
Kingdom  and  France.  They  have  carried  out  the  princi- 
ple in  different  ways,  and  the  results  of  their  experience 
seem  especially  worthy  of  study  by  those  who  wish  to 
understand  and  pass  judgment  on  the  American  policy 
of  railroad  regulation.  The  system  of  regulation  pre- 
vailing in  the  United  Kingdom  rs  more  instructive  for  us 


STATE  REGULATION  IN  ENGLAND  AND  FRANCE    325 

than  that  of  any  other  foreign  country,  because  our  laws 
concerning  railroads  have  been  modeled  in  large  measure 
after  those  of  England. 

Unlike  most  countries,  Great  Britain  did  not  aid  pri- 
vate corporations  in  the  construction  of  railroads.  The 
country  was  so  thickly  settled  and  the  volume,  of  busi- 
ness available  for  rail  transportation  was  so  large  that 
it  was  practically  certain  that  the  railroads  when  built 
would  secure  a  remunerative  traffic.  Private  capital  was 
more  than  willing  to  provide  all  the  funds  needed.  In- 
deed, the  British  Government  felt  that  the  country  was  so 
well  supplied  with  transportation  facilities  by  its  close 
network  of  canals  and  improved  highways  that  a  com- 
pany proposing  to  build  a  railroad  was  required  to  con- 
vince Parliament  of  the  public  necessity  for  the  new 
road.  One  of  the  large  items  of  expense  to  the  railway 
companies  has  been  the  cost  of  getting  a  charter  from 
Parliament.  The  money  thus  spent  went  mainly  as  fees 
to  attorneys  who  were  employed  to  inform  the  parliamen- 
tary committees  as  to  the  desirability  of  the  proposed  work. 

The  people  of  Great  Britain  have  never  seriously 
thought  of  nationalizing  the  railway  system  of  their 
country.  The  only  act  of  Parliament  in  which  that  pol- 
icy found  expression  was  passed  in  1844,  w^hen  the  Gov- 
ernment inserted  in  an  act  affecting  railroads  a  clause 
reserving  to  itself  the  right  to  purchase  the  railroads 
after  a  period  of  twenty-one  years.  This  idea  never 
found  expression  in  subsequent  legislation,  and  thus  did 
not  become  a  part  of  English  policy.  In  1844  there  was 
a  tendency  on  the  part  of  certain  foreign  countries,  par- 
ticularly Belgium,  to  provide  for  the  future  government 
ownership  of  railroads.  The  British  act  of  that  year  was 
merely  an  indication  of  the  general  tendency  of  the 
times. 

At  the  time  of  the  introduction  of  railroads  into  the 


326  AMERICAN  RAILWAY   TRANSPORTATION 

United  Kingdom  there  was  general  adherence  to  the 
doctrine  of  non-interference  on  the  part  of  the  state 
with  economic  activities.  It  w^as  thought  that  the  state 
should  leave  industry  and  transportation  alone,  and  that 
competition  among  rival  producers  and  carriers  would 
regulate  prices  and  charges  in  a  satisfactory  manner. 
Parliament  thought  it  might  be  possible  for  the  owners 
of  the  railroads  to  charge  those  who  used  the  lines  more 
than  would  be  just,  and  so  in  the  first  charters  the  maxi- 
mum "  tolls  "  that  might  be  charged  were  stated.  The 
charters  were  drawn  in  that  manner  because  they  were 
copied,  with  little  modification,  from  the  charters  that 
Parliament  had  for  many  years  been  granting  to  turn- 
pike companies.  The  railroad  was  thought  to  be  only  an 
improved  highway,  and  it  was  expected  that  those  wha 
used  the  railroad  would,  in  part  at  least,  furnish  their 
own  vehicles.  The  railroad  company,  it  was  expected, 
would  furnish  the  track,  would  supply  a  part  of  the  trac- 
tion power,  and  possibly  act  to  some  extent  as  a  carrier, 
using  its  own  vehicles.  It  was  expected,  however,  that 
shippers  would  usually  prefer  to  provide  their  own  cars 
and  wagons.  Although  the  charters  contained  a  schedule 
of  maximum  tolls.  Parliament  thought  that  the  competi- 
tion of  railroads  with  each  other  and  of  different  carriers 
over  the  same  line  would  be  the  chief  force  for  the  regu- 
lation of  transportation  charges. 

Before  a  decade  had  passed,  it  was  seen  clearly  that 
the  railroad  and  tram-road  were  very  dissimilar,  and  that 
the  maximum  tolls  inserted  in  the  original  charter  had 
exerted  no  influence  whatever  upon  railway  charges. 
The  railroad  companies  became  the  exclusive  carriers 
over  their  own  lines. 

In  the  earlier  years  competition  among  the  roads  was 
active,  but  the  rival  companies  soon  began  to  amalgamate 
or  consolidate  their  properties  so  as  to  limit  this  rivalry 


STATE  REGULATION  IN  ENGLAND  AND  FRANCE    327 

for  business.  The  rapid  progress  of  these  consolidations 
alarmed  Parliament,  and  before  1850  it  was  clearly  un- 
derstood that  the  shippers  and  the  traveling  public  could 
not  safely  rely  on  competition  among  rival  companies  for 
protection  either  against  exorbitant  charges  or  unjust 
discriminations. 

I^umerous  laws  were  passed  by  Parliament  to  check 
the  consolidation  of  roads,  but  these  laws  were  of  practi- 
cally no  avail.  The  Government  then  decided  upon  the 
legal  regulation  of  the  relation  of  the  carriers  and  the 
public.  In  1840  and  1842  the  Board  of  Trade  was  given 
general  supervision  over  the  railroads,  and  in  1844  and  in 
1846  a  commission  was  appointed  to  assist  in  the  enforce- 
ment of  the  laws  applying  to  railroads.  The  commission 
of  1846  was  in  existence  for  five  years,  but  it  possessed 
so  few  powers  that  it  accomplished  very  little,  and  it 
was  not  continued  after  1851.  After  making  an  elaborate 
investigation  in  1852-'53,  Parliament  passed  a  general 
law  in  1854  for  the  regulation  of  railroads.  This  law 
prohibited  the  railroads  from  exacting  exorbitant  charges, 
required  them  to  afford  all  reasonable  facilities,  and  pro- 
hibited them  from  giving  "  any  undue  or  unreasonable 
preference  or  advantage  to  or  in  favor  of  any  particular 
person  or  company  or  any  particular  description  of  traffic 
in  any  respect  whatsoever." 

The  enforcement  of  this  law  was  left  to  the  general 
machinery  of  the  courts,  to  whom  any  one  having  com- 
plaint to  make  was  obliged  to  apply.  There  was  no  pro- 
vision made  for  a  Government  commission  to  assist  in  the 
enforcement  of  the  law.  For  this  reason,  principally,  the 
law  was  of  comparatively  little  effect.  The  process  of 
securing  justice  or  reparation  through  the  courts  was  such 
a  slow  and  expensive  one  that  shippers  having  grievances 
did  not  attempt  to  compel  the  railroads  to  observe  the 
law.     This  act  of  1854  has  influenced  subsequent  legisla- 


328  AMERICAN  RAILWAY  TRANSPORTATION 

tion  in  England  and  the  United  States.  The  first  three 
sections  of  the  interstate  commerce  law  of  the  United 
States  are  taken,  with  bnt  little  change,  from  the  British 
act  of  1854. 

Finding  that  the  public  was  not  appealing  to  the 
courts  for  enforcement  of  the  provisions  of  the  law  of 
1854,  and  also  observing  the  continued  tendency  of  the 
railroads  to  consolidate  and  to  cooperate  in  the  making 
of  rates.  Parliament  in  1873  passed  a  law  establishing  a 
board  of  three  railway  commissioners.  It  was  stipulated 
that  one  of  the  members  should  be  a  lawyer  and  another 
should  be  a  man  who  had  had  practical  experience  in  the 
railway  business.  The  primary  purpose  of  establishing 
this  commission'  was  to  provide  a  board  to  whom  any 
one  who  had  a  complaint  against  the  railroads  might, 
without  expense  to  himself,  appeal  for  aid  in  enforcing 
the  act  of  1854.  Complaints  were  made  in  large  number 
to  the  commission,  and  although  the  board  had  originally 
been  established  for  a  period  of  only  five  years,  its  life 
was  continued  from  time  to  time  until  the  passage  of  the 
act  of  1888,  when  the  commission  was  made  a  permanent 
body  with  enlarged  powers.  Under  the  act  of  1888  the 
commission  consists  of  the  two  men  appointed  upon  rec- 
ommendation of  the  president  of  the  Board  of  Trade. 
One  of  these  two  appointed  members  must  have  had  ex- 
perience in  the  railway  business.  There  are  also  three 
ex-officio  commissioners — one  for  England,  one  for  Scot- 
land, and  one  for  Ireland — consisting  in  the  case  of  each 
country  of  a  judge  of  a  superior  court.  When  the  com- 
mission sits  in  England  it  consists  of  the  two  appointed 
members  and  the  English  judge;  when  in  Scotland,  of  the 
two  appointed  members  and  the  Scotch  judge;  and  like- 
wise in  Ireland  the  third  member  is  the  Irish  judge.  The 
decisions  of  the  commission  are  final  as  regards  questions 
of  fact,  and  the  orders  issued  by  the  commission  must 


STATE  REGULATION  IN  ENGLAND  AND  FRANCE    329 

be  observed  by  the  carriers,  unless  the  orders  are  set 
aside  by  appeal  to  a  superior  court.  It  was  further  pro- 
vided in  the  act  of  1888  that  every  railroad  company 
must  submit  to  the  Board  of  Trade,  within  six  months 
after  the  passage  of  the  act,  a  revised  classification  of  its 
freight  business  and  a  revised  schedule  of  maximum  rates. 
The  classifications  and  schedules  thus  submitted  were  to 
be  scrutinized  by  the  Board  of  Trade,  and  after  having 
been  put  into  form  satisfactory  to  the  board,  were  to  be 
submitted  to  Parliament,  accompanied  by  such  observa- 
tions as  the  board  might  think  fit  to  make.  If  any  rail- 
road company  failed  to  submit  a  classification  and  sched- 
ule of  charges,  the  board  was  empowered  to  make  such 
provisional  classifications  and  ^x  such  provisional  rates 
as  it  deemed  best,  and  submit  them  with  its  recommenda- 
tions to  Parliament.  It  was  provided  in  the  act  that 
Parliament  should,  if  it  approved  of  the  recommendations 
of  the  Board  of  Trade,  enact  the  classifications  and  sched- 
ules into  statutes  binding  upon  the  carriers  until  changed 
by  subsequent  legislation. 

The  law  of  1888,  now  in  force  in  Great  Britain,  seems 
to  have  worked  satisfactorily.  The  relations  of  the  car- 
riers and  the  public  are  harmonious,  and  there  are  but 
few  complaints  either  of  exorbitant  charges  or  unreason- 
able discriminations.  The  commission  has  apparently 
had  little  work  to  do.  Possibly  the  law  has  worked  so 
successfully  because  the  railways  of  the  country  before 
the  enactment  of  the  law  had  been  consolidated  into  a 
small  number  of  systems,  each  system  having  the  traffic 
of  a  fairly  distinct  part  of  the  country  without  much 
rivalry  from  other  companies.  The  law^  permits  the  rail- 
ways to  pool  their  traffic  whenever  they  may  think  it 
necessary  to  do  so.  As  a  matter  of  fact,  pooling  has  not 
been  much  resorted  to,  because  the  division  of  the  field 
among  the  railroad  systems  has  made  pooling  unnecessary. 


330  AMERICAN  RAILWAY  TRANSPORTATION 

The  relations  of  the  railways  with  each  other  have 
been  made  more  harmonious,  and  the  prevention  of  un- 
reasonable discriminations  has  been  made  easier  by  the 
railway  clearing-house.  In  1842  the  railways  of  Great 
Britain  decided  to  establish  a  clearing-house  for  the  col- 
lection of  the  charges  on  joint  business  and  for  the  dis- 
tribution of  those  receipts  among  the  railroads  concerned 
in  through  shipments.  In  1850  Parliament  incorporated 
the  clearing-house,  and  since  then  it  has  been  a  very 
prominent  feature  of  the  British  railway  system. 

Relation  of  the  Railroads  and  the  State  in  France 

The  French  railway  system  has  some  unique  features. 
The  result  of  railway  evolution  in  France  has  been  the 
development  of  7  large  railway  systems,  of  which  6  are 
controlled  by  private  corporations.  The  other  is  owned 
and  operated  by  the  Government.  Five  of  the  private 
systems  radiate  from  Paris,  and  one  has  its  lines  in  the 
south.  Each  system  possesses  a  monopoly  of  the  rail- 
road transportation  service  of  a  definite  portion  of  the 
country. 

The  tendency  of  the  French  people  to  be  systematic 
is  well  illustrated  by  their  legislation  regarding  railroads. 
As  soon  as  the  significance  of  the  railroad  as  a  transporta- 
tion agent  was  realized  (as  early  as  1833),  a  general  law 
was  passed  stipulating  that  concessions  to  railways  should 
be  made  only  by  legislative  enactment,  that  the  charter 
period  should  not  exceed  ninety-nine  years,  that  the  state 
should  reserve  the  option  of  managing  the  railroads,  that 
the  state  should  have  the  right  of  passing  upon  maximum 
charges,  and  that  the  state  should  become  the  owner  of 
the  railroads  at  the  expiration  of  the  charters.  These  prin- 
ciples have  been  maintained  in  all  subsequent  laws. 

The  policy  of  state  const^-uction  and  operation  was 
carefully  considered  by  two  special  commissions  in  1837 


STATE  REGULATION  IN  ENGLAND  AND  FRANCE    331 

and  1840,  and  the  decision  was  reached  that  the  lines 
should  be  built  and  run  by  companies  subsidized  and  con- 
trolled by  the  Government.  This  policy  was  embodied  in 
the  detailed  law  of  1842,  which  provided  for  several  roads 
radiating  from  Paris.  The  central  and  local  governments 
furnished  the  lands,  road-bed,  and  stations,  the  companies 
provided  the  superstructures  and  rolling-stock,  the  con- 
tributions of  the  Government  averaging  about  $50,000  a 
mile.  The  state  owned  the  road-bed  and  leased  the  lines 
to  the  companies.  The  charters  of  the  companies  were 
limited  to  forty  years;  the  average  length  of  the  leases 
was  thirty-six  years. 

Progress  under  this  plan  was  satisfactory  until  the 
panic  of  1848,  when  work  on  the  new  lines  was  tem- 
porarily stopped.  The  state  decided  to  buy  one  road,  that 
from  Paris  to  Lyons.  The  rest  of  the  mileage  was  divided 
among  27  companies.  The  second  important  phase  of  the 
railway  history  of  France  was  inaugurated  by  Napoleon 
III.  He  became  Emperor  in  1851,  and  soon  proceeded, 
as  a  measure  of  conciliation  to  the  money  interests,  to 
group  the  railway  companies  into  the  present  six  large  sys- 
tems, each  system  having  a  monopoly  within  the  section 
served  by  it.  The  railroads  were  not  to  revert  to  the 
state  until  ninety-nine  years  from  the  date  of  the  change. 
As  the  time  of  the  leases  has  not  since  been  altered,  they 
will  expire  from  1950  to  1960. 

The  companies,  however,  did  not  construct  new  lines 
so  rapidly  as  was  desired,  and  a  financial  crisis  in  1857 
brought  all  railroad  building  to  a  stop.  In  consequence, 
France  entered  upon  a  third  phase  of  her  railway  experi- 
ence in  1859  by  guaranteeing  the  bonds  which  the  compa- 
nies might  issue  to  secure  funds  to  construct  new  lines. 
The  state  guaranteed  4  per  cent  interest  on  the  bonds,  and 
that  enough  should  be  contributed  to  a  sinking-fund  to 
make  certain  the  amortization  of  the  bonds.    Indeed,  this 


332  AMERICAN  RAILWAY  TRANSPORTATION 

guarantee  of  the  interest  on  the  bonds  comprehended 
more  than  the  obligations  incurred  in  constructing  new 
lines.  There  were  certain  existing  roads  whose  operation 
was  not  profitable,  and  they  were  classified  with  the  new 
lines  and  their  obligations  were  given  the  same  guarantee 
of  interest  as  was  given  the  bonds  of  new  lines.  There 
was  no  change  made  in  the  provision  of  the  charters  that 
the  roads  should  revert  to  the  state  at  the  end  of  ninety- 
nine  years;  but  the  state  added  a  proviso  giving  it  the 
right  to  buy  any  road  after  fifteen  years. 

The  six  companies  built  a  large  number  of  new  lines, 
and  the  state's  obligations  were  made  heavy;  but  de- 
mands for  local  lines  were  not  all  met.  So  in  1865  the 
state  decided  to  authorize  the  construction  of  local  roads 
by  companies  aided  by  the  local  communities  and  by  the 
Central  Government,  which  granted  these  companies  the 
same  interest  guarantees  that  had  been  granted  to  the  large 
companies  for  new  lines  in  1859.  The  state  attempted, 
however,  to  preserve  to  the  six  large  companies  the  monop- 
oly powers  they  possessed,  by  providing  that  the  local  roads 
should  be  branches  and  feeders  of  the  existing  lines,  and 
not  be  so  built  as  to  be  capable  of  being  developed  into 
through  lines  that  might  compete  with  the  large  systems. 
The  local  lines,  however,  were  built  with  the  standard 
gage,  and  a  railway  speculator  named  Phillippart  tried  to 
weld  the  local  roads  into  competing  lines.  He  was  de- 
feated in  his  attempt  in  1876;  but  his  failure  threw  the 
local  roads  into  bankruptcy  and  led  the  state  to  enter  upon 
the  fifth  phase  of  its  railway  policy — ^the  purchase  and 
operation  of  railways  by  the  Government. 

The  local  roads  were  principally  in  the  north  and  in 
the  southwest.  Those  in  the  north  were  absorbed  by 
the  IN'orthern  Railroad;  but  an  agitation  for  state  rail- 
roads prevented  the  purchase  of  the  local  roads  in  the 
southwest  by  a  private  corporation.     In  1877  the  state 


STATE  REGULATION  IN   ENGLAND  AND  FRANCE    333 

decided  to  buy  these  southern  local  lines,  and  two  years 
later,  under  the  leadership  of  Freycinet,  Gambetta,  and 
others,  who  were  doubtless  influenced  by  what  was  trans- 
piring in  Germany,  the  French  ministry  decided  to  begin 
the  construction  of  a  large  system  of  state  railways.  The 
legislature,  however,  gave  the  ministry  only  moderate 
financial  support  in  the  execution  of  its  plans.  The  state 
roads  did  not  prove  a  success.  The  new  lines  built  by  the 
state  were  located  with  reference  to  political  as  well  as 
business  claims,  and  were  local  disconnected  lines  that 
could  not  be  operated  profitably  as  independent  roads. 
The  state  leased  them  for  short  terms  to  the  six  private 
companies.  The  local  roads  which  the  state  had  bought 
in  the  southwest  were  united  into  a  Government  system, 
but  as  it  had  no  Paris  connection  it  could  not  exercise 
much  power  in  comparison  with  the  six  large  private 
companies. 

In  1883  France  adopted  the  railway  policy  to  which 
she  has  since  adhered.  The  construction  of  roads  by 
the  state  was  abandoned.  The  state  retained  its  system 
of  roads  in  the  southwest,  but  gave  those  which  it  owned 
in  other  parts  of  the  country  to  one  or  another  of  the 
six  companies,  receiving  from  some  companies  certain 
lines  which  might  have  competed  with  the  state  roads 
in  the  southwest.  The  new  lines  to  be  constructed  in  the 
future  were  to  be  built  by  the  companies  with  capital 
advanced  by  them.  The  money  thus  advanced  is  being 
repaid  by  the  state  in  annual  instalments.  By  the  time 
the  charters  expire  the  annual  payments  of  the  state  will 
equal  the  capital  advanced  by  the  companies,  together 
with  interest  on  the  advances. 

France  in  1883  returned  to  the  plan  of  granting  a 
complete  monopoly  of  transportation  to  subsidized  private 
companies,  and  increased  the  subsidies  to  the  companies 
by  guaranteeing  to  their  stockholders  minimum  annual 


334  AMERICAi^  RAILWAY  TRANSPORTATION 

dividends  equal  to  those  which  they  had  been  receiving 
for  the  past  few  years.  The  companies  are  required  to 
turn  over  to  the  state  two-thirds  of  such  dividends  as 
they  may  earn  in  excess  of  certain  stipulated  percentages, 
but  the  limit  is  put  so  high  that  the  state  will  hardly 
receive  any  considerable  share. 

France  affords  an  example  of  a  country  that  has  ad- 
hered pretty  closely  to  a  policy  of  granting  monopoly 
privileges  to  private  railways.  The  results  are  not  alto- 
gether satisfactory.  The  state  has  been  able  to  maintain 
a  strict  regulation  of  railway  management;  discrimina- 
tions have  been  prevented,  the  waste  due  to  competition 
has  been  avoided,  and  the  state  has  the  prospect  of  com- 
ing into  the  possession  of  the  railroads  in  the  future. 
But  the  railway  companies  have  made  good  use  of  their 
opportunities  to  force  the  public  to  aid  them.  In  1842 
they  received  construction  subsidies,  in  1852  an  exten- 
sion of  their  charters  from  forty  years  to  ninety-nine 
years  from  the  date  of  change.  In  1857  the  state  guar- 
anteed the  interest  and  repayment  of  a  large  portion  of 
their  bonds,  and  in  1883  the  state  assured  to  all  investors 
liberal  dividends  on  their  advances.  The  public  has  cer- 
tainly given  liberal  aid  to  the  railroads,  but  it  has  not 
enjoyed  especially  low  rates;  indeed,  railway  charges  in 
France  as  contrasted  with  those  in  other  countries  have 
been  relatively  high. 

REFEREN-CES    FOR    FURTHER    READITTG 

Hadlet,  a.  T.     Railroad  Transportation,  chs.  viii,  ix,  and  x. 
Hendrick,  F.     Railway  Control  by  Commissions,  1900,  chs.  ii  and  vii. 
AcwoRTH,  W.  M.    The  Railways  of  England,  London,  fifth  ed.,  1899. 
Meter,  B.  H.     Report  of  Industrial  Commission,  vol.  ix,  pp.  946- 

949,  and  955-957. 
FrNDLAY,  G.     The  Working  and  Management  of  an  English  Railway. 
Sterne,  Simon,     Railway  Systems  in  Europe,  Sen.  Misc.  Doc.  No. 

66,  vol.  ii,  1886-'87. 


CHAPTEK   XXiy 

RELATIONS  OF  THE  RAILWAYS  AND  THE  STATE  IN  ITALY 
AND    GERMANY 

In  contrast  with  the  policy  of  the  private  ownership 
of  railroads  exemplified  by  the  United  Kingdom  and 
France  is  the  plan  of  government  ownership  typified  in 
different  ways  by  the  railway  history  of  Italy  and  Ger- 
many. Government  ownership  prevails  in  many  countries 
both  in  Europe  and  in  the  other  parts  of  the  world  that 
are  under  the  control  of  European  nations.  During  the 
past  twenty-five  years  there  has  been  a  rather  marked 
tendency  outside  of  America  and  the  United  Kingdom  to 
substitute  state  control  for  private  management. 

In  some  instances  the  transition  from  private  to  state 
control  has  included  a  short  period  during  which  a  part 
of  the  lines  taken  over  by  the  Government  were  leased 
to  the  state  by  their  private  owners.  In  Prussia,  Austria, 
and  Hungary,  for  instance,  the  Government  built  some 
lines,  purchased  others,  and  leased  still  others  of  their 
owners  until  the  Government  could  more  readily  purchase 
the  lines  thus  leased.  This  change,  by  means  of  a  lease, 
from  private  control  to  complete  nationalization  applied 
to  only  a  few  lines  in  Prussia,  and  was  made  in  a  few 
years;  but  in  Austria  and  Hungary  more  use  was  made  of 
the  plan  of  leasing,  and  the  purchase  of  the  private  lines 
proceeded  more  slowly.  Switzerland  is  passing  directly 
from  private  to  Government  ownership  without  leasing 
the  lines. 

835 


336  AMERICAN  RAILWAY  TRANSPORTATION 

Some  countries  have  built  or  purchased  railway  sys- 
tems and  then  entrusted  the  operation  of  the  roads  to 
leasing  corporations.  Holland,  for  example,  constructed 
both  of  the  two  railroad  systems  in  the  country,  but  the 
Government  operates  only  one  of  the  systems,  the  other 
one  being  leased  to  a  corporation.  In  India  the  Govern- 
ment has  leased  several  lines  to  companies,  and  some 
other  countries  have  taken  similar  action.  The  plan 
of  Government  ownership  and  private  management  has 
been  carried  out  more  fully  by  Italy  than  any  other 
country. 

The  history  of  the  relation  of  the  railway  to  the  Gov- 
ernment in  Italy  is  peculiarly  interesting.  The  principal 
roads  were  started  while  Italy  was  still  split  up  into  a 
number  of  petty  states.  These  states  gave  charters  to 
private  companies  to  construct  lines,  and  assisted  them 
with  advances  of  capital,  interest  guarantees,  and  subsi- 
dies for  building  lines  and  for  running  trains.  Each  state 
had  its  own  little  isolated  railway  system. 

The  political  unification  of  the  country  was  followed 
by  railway  consolidation,  and  the  roads  were  united  into 
four  systems.  Though  advantageous  to  the  railway  com- 
panies, consolidation  did  not  make  them  prosperous,  and 
the  Italian  Government  found  itself  heavily  burdened 
by  the  financial  aid  it  had  undertaken  to  give  the  railroads. 
In  the  later  seventies  Italy  decided  to  purchase  the  roads 
and  to  construct  much  new  mileage.  The  motive  was 
partly  the  political  one  of  desiring  to  take  the  railroads 
of  upper  Italy  out  of  the  hands  of  an  Austrian  company. 

The  ministers  who  had  inaugurated  the  policy  of 
state  purchase  were  in  favor  of  the  state  operating  its 
roads,  but  they  were  displaced  by  men  who  favored  a  lease 
of  the  lines  to  private  companies.  In  1878  the  Italian 
Parliament  appointed  a  commission  to  investigate  the  en- 
tire question  of  state  and  private  management  of  railroads. 


STATE  CONTROL  IN  ITALY  AND  GERMANY        337 

The  commission  made  an  exhaustive  study  of  the  subject 
and  submitted  a  comprehensive  report  in  1881,  in  which 
it  opposed  the  operation  of  railways  by  the  state.  The 
conclusions  of  the  commission  were  that  state  operation 
and  management  would  be  more  expensive  than  private, 
and  that  it  would  be  accompanied  by  grave  political  dan- 
gers. 

In  1885  Italy  leased  the  railroads  on  the  mainland  to 
two  companies,  the  Adriatic  and  the  Mediterranean,  of 
nearly  equal  strength,  each  having  a  trunk  line  extend- 
ing the  long  way  of  the  country.  The  Sicilian  roads  are 
leased  to  another  company.  The  contracts  are  for  a  period 
of  sixty  years,  each  party  having  the  right  to  terminate 
the  contract  at  the  end  of  twenty  or  forty  years  by  giving 
two  years'  notice.  The  rolling-stock  was  sold  to  the  com- 
panies, and  the  lines  and  structures  leased  to  them.  The 
railway  history  of  Italy  covers  nearly  every  phase  of  the 
relation  of  the  railways  to  the  states,  but  though  instruct- 
ive, is  less  so  than  it  would  have  been  had  Italy  been 
a  politically  united  and  industrially  strong  country  during 
the  past  sixty  years.     [See  note,  page  348.] 

The  plan  of  government  ownership  of  railroads  and 
their  lease  to  private  companies  has  an  analogy  in  the 
municipal  ownership  and  corporate  management  of  street- 
railways.  Several  foreign  cities  own  the  street-car  lines, 
and  lease  them  to  corporations  which  conduct  the  service 
under  the  regulation  of  the  city  government.  The  plan 
has  some  advantages,  and  its  adoption  by  American  cities 
has  been  strongly,  though  as  yet  unsuccessfully,  urged  by 
influential  advocates. 

Relation  of  the  Railways  and  the  State  in  Prussia 

Though  there  are  several  countries  in  which  the  rail- 
roads are  owned  by  the  state,  Germany  furnishes  the 
most  prominent  and  successful  illustration  of  state  owner- 


338  AMERICAN  RAILWAY  TRANSPORTATION 

ship  and  operation.  Each  state  composing  the  enipire 
now  owns  most  of  the  railroads  within  its  borders.  The 
Imperial  Government  is  also  a  railroad  owner,  having 
acquired  the  lines  in  Alsace-Lorraine  when  that  section 
was  taken  over  from  France  in  1871.  However,  these 
lines  owned  by  the  empire  are  leased  to  Prussia  and  oper- 
ated as  a  part  of  the  system  belonging  to  that  state. 

As  compared  with  England,  the  industrial  condition 
of  Germany  at  the  time  of  the  beginning  of  railway 
history  was  very  backward.  Germany  had  hardly  be- 
gun her  industrial  advance;  indeed,  the  great  develop- 
ment of  her  industries  and  her  natural  resources  did  not 
much  antedate  1870.  These  facts  go  far  to  explain  the 
difference  between  the  railway  policy  of  the  United  King- 
dom and  that  of  Germany.  Had  the  industries  of  Ger- 
many been  as  fully  developed  as  those  of  England  in 
1830,  and  had  the  political  unification  of  the  country  been 
accomplished  before  that  time,  it  can  not  be  doubted 
that  the  demands  for  railroad  transportation  would  have 
been  so  much  greater  than  they  were  that  private  capital 
would  have  undertaken,  without  the  support  of  the  state, 
the  work  of  supplying  the  country  with  a  railway  net. 
The  state,  moreover,  would  not  have  had  the  military 
reasons  which  she  had  urging  her  to  engage  in  the  con- 
struction of  railroads  and  the  purchase  of  those  built  by 
private  capital. 

Prior  to  the  establishment  of  the  German  Empire  in 
1871,  German  railway  legislation  was  that  of  the  several 
states  only;  but  since  1871  the  empire  has  shared  with 
the  states  in  legislation  for  the  control  and  development 
of  railways.  Prussia  being  the  largest  and  most  typical 
German  state,  her  railway  policy  exemplifies  that  of  the 
smaller  states.  In  general,  the  policy  of  Prussia  was 
to  aid  private  capitalists  in  the  construction  of  roads,  and 
to  subject  the  roads  thus  constructed  and  operated  by  cor- 


STATE  CONTROL  IN  ITALY  AND  GERMANY        339 

porations  to  a  detailed  regulation.  This  has  finally  cul- 
minated in  a  nearly  complete  nationalization  of  the  railway 
system. 

The  first  general  law  regulating  railway  affairs  was 
passed  by  Prussia  in  1838.  This  initial  law  was  detailed 
and  comprehensive,  and  provided  for  a  thorough  control 
of  the  railroads  by  the  state.  The  law  has  been  added  to 
by  much  subsequent  legislation,  but  has  never  been  sup- 
planted. It  contained  the  essential  principles  of  the  pres- 
ent system  of  governmental  control  of  private  railroads. 
Among  the  minor  provisions  of  the  law  was  one  stipulating 
that  the  companies  building  railroads  in  Prussia  were  to  be 
protected  for  thirty  years  against  the  construction  of  com- 
peting lines.  This  guarantee  of  protection  against  compe- 
tition did  not,  however,  prove  a  sufficient  inducement  to 
private  capital,  and  in  1842  a  law  was  passed  providing  for 
state  aid  in  the  form  of  interest  guarantees,  the  state  assur- 
ing to  those  investing  capital  in  railways  a  minimum  inter- 
est on  their  investments.  In  guaranteeing  the  interest  re- 
turn on  invested  capital,  the  Government  reserved  the  right 
of  taking  the  roads  under  its  own  management,  should 
the  private  companies  prove  to  be  unable  so  to  manage 
their  lines  as  to  secure  net  earnings  large  enough  to  pay 
the  minimum  interest  guaranteed  by  the  state.  Several 
of  the  companies  were  unable  to  earn  enough  to  meet 
these  interest  payments,  and  their  lines  were  taken  over 
and  managed  by  the  Government.  The  history  of  rail- 
way legislation  in  other  countries  as  well  as  in  Prussia 
shows  that  state  subsidies  and  interest  guarantees  have 
had  not  a  little  to  do  in  bringing  about  the  nationalization 
of  railroads. 

The  German  Government  is  founded  upon  a  military 
basis.  The  efforts  of  Bismarck  and  the  other  statesmen  who 
wrought  so  successfully  for  the  unification  of  Germany 
were  directed  toward  strengthening  the  military  power  of 


34:0  AMERICAN  RAILWAY  TRANSPORTATION 

the  German  states,  and  of  Prussia  in  particular.  These 
statesmen  saw  that  the  railway  system  of  Prussia  and 
the  other  German  states  might  be  made  to  assist  greatly 
in  furthering  the  military  aims  they  had  in  view.  Conse- 
quently in  1848  Prussia  began  the  construction  of  a 
railroad  from  Berlin  toward  the  Russian  frontier.  The 
primary  purpose  was  military,  and  the  same  purpose  con- 
trolled the  railway  policy  of  Prussia  for  more  than  twenty 
years.  From  1848  to  1862  Prussia  added  slowly  to  the 
state  railway  net,  making  such  appropriations  therefor  as 
her  limited  resources  would  permit.  The  stocks  of  pri- 
vate railroad  companies  were  also  purchased  by  the  state 
from  time  to  time.  From  1862  to  1870  Bismarck  gave 
less  attention  than  he  had  given  during  the  preceding 
decade  to  the  development  of  the  state  railway  system. 
His  every  energy  was  devoted  to  preparing  Prussia  for 
the  great  struggle  with  Austria  and  with  France  which 
he  foresaw  must  precede  the  unification  of  the  empire. 
There  was  no  pronounced  change  in  Bismarck's  railway 
policy  during  this  decade;  the  lines  controlled  by  the  state 
were  operated  with  a  view  to  securing  a  maximum  amount 
of  business.  The  state  managed  its  roads  in  much  the  same 
way  as  the  companies  did  theirs.  The  roads  having  been 
acquired  for  military  purposes  were  operated  with  a  view 
to  securing  as  favorable  fiscal  results  as  possible. 

After  the  Franco-Prussian  War  Bismarck  tried  to 
bring  about  the  purchase  by  the  empire  of  all  the  rail- 
roads, those  belonging  to  the  several  German  states  and 
those  owned  by  companies.  Bismarck  desired  to  strength- 
en the  newly  founded  empire,  and,  by  making  it  relatively 
much  stronger  than  any  of  the  component  state  govern- 
ments, insure  the  permanency  of  German  unity.  This,  how- 
ever, was  not  the  reason  advanced.  The  military  advan- 
tage of  the  ownership  of  the  railroads  by  the  empire,  the 
elimination  of  railway  discriminations  by  means  of  state 


STATE  CONTROL  IN  ITALY  AND  GERMANY         341 

ownership,  and  the  ability  of  the  state  to  use  the  rail- 
roads for  the  promotion  of  industrial  and  social  welfare, 
were  the  arguments  upon  which  chief  stress  was  laid. 
Bismarck's  scheme  for  the  purchase  of  the  railways  by 
the  empire  was  not  adopted,  because  of  the  jealousies  of 
the  smaller  states,  but  in  1878  he  induced  Prussia  to 
proceed  with  the  acquisition  of  the  private  railroads  within 
its  limits,  and  thus  practically  to  complete  the  work  of 
nationalizing  German  railways. 

The  ownership  of  the  railroads  by  the  Government  in 
Germany  and  other  states  has  come  about  in  various 
ways.  When  Prussia  decided  to  nationalize  the  railways 
of  the  country,  the  Government  did  not  at  once  take  pos- 
session of  all  the  lines,  but  purchased  one  system  after 
another  as  satisfactory  arrangements  could  be  made  with 
the  corporations.  When  the  policy  of  state  purchase  was 
inaugurated,  the  Government  owned  more  miles  of  road 
than  any  single  corporation  within  the  state.  In  April, 
1880,  the  state  possessed  3,760  miles  of  road.  During 
the  next  few  years  the  state  purchases  were  made  with 
considerable  rapidity,  so  that  in  April,  1886,  the  Govern- 
ment was  managing  13,000  miles  of  lines.  The  present 
mileage  owned  and  operated  by  Prussia  is  about  20,000. 
The  Government  has  experienced  but  little  difficulty  in 
securing  possession  of  the  private  lines.  It  has  not  been 
necessary  in  any  case  to  resort  to  expropriation.  By 
offering  the  companies  a  liberal  sum  for  their  properties 
and  by  exchanging  Government  bonds  for  the  securities 
of  the  companies,  the  state  has  been  able  to  purchase  the 
lines  without  serious  opposition  on  the  part  of  their  for- 
mer owners. 

It  should  be  noted  that  there  are  still  some  railroads 
in  Prussia  owned  and  operated  by  private  companies. 
In  1900  there  were  about  600  miles  of  main  line  and 
about  1,400  miles  of  auxiliary  lines  in  the  hands  of  the 


342  AMERICAN  RAILWAY  TRANSPORTATION 

private  companies.  These  private  roads  consist  of  rela- 
tively unimportant  lines,  and  are  operated  by  their  pri- 
vate owners  in  accordance  with  detailed  regulations  laid 
down  by  the  state.  They  are  in  no  sense  com^^etitors  with 
the  state  system,  and  they  will  probably  soon  be  acquired 
by  the  Government. 

The  results  of  the  nationalization  of  the  railroads  in 
Prussia  have  been  highly  satisfactory.  This  is  particularly 
true  of  the  financial  results.  According  to  a  law  passed 
in  1882,  the  first  charge  on  the  net  profits  of  the  state 
railways  is  the  payment  of  the  interest  on  the  debt  in- 
curred in  the  purchase  of  the  roads.  The  railway  man- 
agement is  also  required  to  pay  off  at  least  three-fourths 
of  one  per  cent  of  the  total  debt  each  year,  provided,  of 
course,  the  net  profits  are  large  enough  to  enable  such 
payments  to  be  made.  If  these  interest  and  amortization 
payments  do  not  take  all  the  net  profits,  the  surplus  may 
be  used  in  purchasing  railways  or  may  be  turned  into  the 
general  budget  of  the  state. 

The  state  has  succeeded  in  operating  the  railroads 
economically  and  with  surprisingly  large  net  profits.  Dur- 
ing the  first  ten  years  following  the  passage  of  the  act  of 
1882  the  average  net  profits  equaled  5J  per  cent  per 
annum  on  the  capitalization.  During  the  ^yq  years  end- 
ing in  1900  the  net  profits  have  averaged  7.16  per  cent. 
These  large  net  earnings  have  enabled  the  state  to  pay 
the  interest  charge  of  3^  per  cent  on  the  debt,  to  pay  off 
over  f  per  cent  annually  of  the  debt,  and  to  turn  over  a 
large  amount  annually  to  the  general  budget.  During  the 
eighteen  years  ending  with  and  including  1899  the  total 
net  profits  amoimted  to  nearly  $1,500,000,000.  Of  this 
sum  about  $770,000,000  were  required  to  meet  the  inter- 
est charges.  The  debt  has  been  reduced  $220,000,000, 
and  nearly  $350,000,000  have  been  turned  over  to  the 
Government  to  meet  the  ordinary  expenses  of  other  de- 


STATE  CONTROL  IN  ITALY  AND  GERMANY    343 

partments.  Over  $15,000,000  have  been  devoted  to 
extraordinary  expenses  for  general  improvements  and  for 
rolling-stock,  and  large  sums  have  been  taken  from  earn- 
ings for  the  construction  of  new  lines. 

As  was  stated  in  Chapter  XXI,  railway  charges  in 
Prussia  are  low  for  the  passenger  traffic  and  high  for  the 
freight  service  as  compared  with  the  United  States,  the 
average  earnings  per  passenger  per  mile  being  now  but 
a  little  over  one  cent — barely  one-half  the  average  earn- 
ings per  passenger  per  mile  secured  by  the  railroads  of  the 
United  States.  This  low  passenger  earning  is  the  result 
of  the  low  fares  in  the  third  and  fourth  classes,  the  ones 
used  by  nine-tenths  of  the  people  of  the  country.  The 
ordinary  fare — fourth-class — is  about  four-fifths  of  a 
cent  a  mile;  for  third-class,  a  little  over  a  cent  and  a  half 
a  mile.  The  fares  for  the  second  and  first  classes  are 
relatively  high,  but  as  comparatively  few  people  travel 
by  those  classes,  the  high  charges  in  those  classes  do  not 
greatly  affect  the  average  passenger  mile  earnings  of  the 
roads.  Freight  rates  in  Prussia  are  nearly  double  those 
in  the  United  States,  the  average  earnings  per  ton  per 
mile  in  Prussia  being  about  1.45  cents — nearly  double 
the  ton  mile  earnings  for  the  railroads  of  the  United 
States  as  a  whole.  In  making  these  comparisons  it  should 
be  borne  in  mind  that  the  charges  must  necessarily  be 
considered  in  connection  with  the  conditions  under  which 
the  services  are  performed.  Prussia  is  a  country  with  a 
small  area  and  a  large  population,  where  passenger  travel 
is  highly  developed  and  where  low  fares  may  be  profit- 
able. On  the  other  hand,  the  freight  business  of  Prussia 
is  very  small  as  compared  with  the  freight  transportation 
carried  on  by  the  American  railways.  We  move  great 
masses  of  commodities  long  distances,  and  can  do  so 
at  a  very  low  rate  per  ton  per  mile. 

It  is  difficult  to  decide  what  effects  state  management 


S4A  AMERICAN  RAILWAY  TRANSPORTATION 

has  had  upon  the  character  of  the  service  performed  by 
the  railroads  of  Prussia.  Most  impartial  critics  consider 
the  passenger  service  to  be  satisfactory,  and  believe  it 
to  be  well  adapted  to  the  needs  of  the  country.  The 
freight  service,  on  the  other  hand,  is  usually  considered 
to  be  inadequately  developed.  The  technical  develop- 
ment of  the  freight  service  in  the  United  States  is  far 
in  advance  of  that  of  Germany.  The  reasons  for  this 
are  partly  economic,  but  they  must  also  be  in  part  admin- 
istrative. Under  the  stress  of  competition  among  rival 
lines  in  this  country,  and  under  the  incentive  w^hich  pri- 
vate management  has  to  reduce  expenses  to  the  lowest 
point,  the  freight  carriers  in  the  United  States  have 
built  up  a  system  of  freight  transportation  that  is  better 
and  more  economical  than  can  be  found  in  any  other 
country.  Whether  the  more  conservative  administration 
of  the  railways  by  state  officials  in  time  will  or  can 
bring  the  German  freight  service  to  the  high  degree  of 
technical  development  attained  in  the  United  States  is 
doubtful;  but  technical  progress  is  being  made  year  by 
year  by  the  German  states,  with  the  result  that  the  pres- 
ent high  cost  of  the  freight  service  will  be  largely  reduced 
within  a  comparatively  few  years. 

The  success  which  the  Prussian  Government  has  had 
in  the  management  of  its  railroads  has  largely  influenced 
other  European  countries,  notably  Belgium,  Austria- 
Hungary,  and  Switzerland.  Until  a  few  years  ago  the 
Belgian  state  operated  a  part  of  the  railway  net  of  the 
country,  the  remainder  being  in  the  hands  of  corpora- 
tions. At  the  present  time  the  railway  system  is  fully 
nationalized.  Austria  and  Hungary  have  continued  to 
increase  the  mileage  of  the  lines  owued  by  the  Govern- 
ment until  in  each  country  the  state  has  secured  posses- 
sion of  most  of  the  important  roads.  A  complete  national- 
ization of  the  railway  systems  of  those  countries  is  a  mat- 


STATE  CONTROL  IN  ITALY  AND  GERMANY   345 

ter  of  a  comparatively  short  time.  Switzerland  is  the  Jast 
European  country  that  has  changed  from  private  to  na- 
tional roads.  In  1898  the  people  authorized  the  Federal 
Government  to  purchase  all  the  roads  in  Switzerland, 
the  right  to  do  so  having  been  reserved  by  the  state 
when  it  granted  the  charters  to  the  companies.  The 
plan  of  nationalization  provided  that  three  of  the  rail- 
way systems  of  the  country  should  be  taken  over  by  the 
Federal  Government  in  1903,  and  that  the  fourth  system, 
the  St.  Gothard,  should  be  acquired  in  1909.  Switzer- 
land is  nationalizing  her  railroads  by  purchasing  them 
in  accordance  with  provisions  contained  in  the  railway 
charters. 

Thirty  years  ago  many  persons  were  advocates  of  a 
system  of  dual  ownership  of  railroads,  the  state  owning 
and  operating  a  few  systems,  and  private  companies  the 
other  lines.  It  was  thought  that  the  competition  of  state 
with  private  lines  would  compel  the  latter  to  charge 
such  rates  and  adopt  such  regulations  and  practises  as 
the  state  chose  to  institute,  and  that  the  abuses  which 
had  arisen  under  unregulated  private  management  would 
be  avoided.  Belgium  and  other  countries  tried  the  plan 
of  dual  ownership,  but  the  results  were  not  satisfactory. 
It  was  discovered  that  the  transportation  abuses  were 
mainly  the  result  of  competition,  and  that  the  rivalry  of 
state  and  private  roads  led  to  discriminations  and  other 
objectionable  practises.  The  chief  advantages  to  be  de- 
rived from  state  ownership  of  railroads  can  be  secured 
only  when  the  state  possesses  a  monopoly  of  railway  trans- 
portation and  is  able  so  to  manage  the  railroads  as  to 
promote  industrial  progress  and  social  changes.  In  all 
countries  where  dual  ownership  has  been  tried  the  state 
has  either  proceeded  with  the  nationalization  of  the  rail- 
ways of  the  country  or  has  surrendered  her  own  lines  to 
the  management  of  corporations. 


346  AMERICAN  RAILWAY  TRANSPORTATION 

This  survey  of  tlje  relation  of  the  railways  to  the 
state  in  our  own  and  foreign  countries  shows  that  the 
governmental  control  of  railways  has  assumed  a  variety 
of  forms.  The  causes  for  this  variation  are  social,  polit- 
ical, and  economic. 

In  some  countries  the  individual  expects  the  state  to 
exercise  many  functions  which  the  citizens  of  other  coun- 
tries do  not  desire  their  government  to  perform.  The 
Government  of  England  presents  a  striking  contrast  to 
those  of  France  and  Germany  in  this  regard.  The  Eng- 
lish political  ideal  has  been  to  minimize  the  industrial 
functions  of  the  Government;  whereas,  the  Continental 
ideal  has  rather  been  to  develop  a  bureaucratic  state 
capable  of  exercising  as  many  functions  as  possible.  The 
continental  governments  have  unhesitatingly  assumed  a 
degree  of  railway  aid  and  control  that  the  English  and 
American  Governments  would  not  have  been  expected 
nor  allowed  to  undertake. 

In  each  country,  furthermore,  the  railway  history  has 
been  influenced  by  the  political  history.  Witness  Italy, 
Germany,  France,  and  the  United  States.  In  Italy  and 
Germany,  national  unity  not  having  been  achieved  until 
long  after  the  railway  construction  began,  the  early  lines 
were  chartered  by  petty  rival  states,  and  the  coordina- 
tion and  consolidation  of  the  railways  in  those  states 
had  hardly  begun  when  the  English  railroads  had  been 
amalgamated  into  large  systems.  The  unstable  political 
conditions  of  Germany  and  Italy  made  it  necessary  for 
the  states  to  give  greater  aid  to  railroads  than  would 
otherwise  have  been  necessary.  Among  the  political 
events  in  France  which  have  affected  the  relations  of  the 
railways  and  the  Government  may  be  mentioned  the 
overthrow  of  the  republic  by  ISTapoleon  III  and  the 
Franco-Prussian  War.  The  fact  that  the  United  States 
is  a  federal  state  composed  of  a  large  number  of  States 


STATE   CONTROL  IN  ITALY  AND  GERMANY        347 

which  have  the  power  to  charter  and  regulate  railways 
has  colored  the  history  of  railway  policy  in  America. 

The  railway  policy  of  every  government  has  been 
influenced  by  its  financial  condition.  The  Continental 
states  which  adopted  the  policy  of  state  railways  at  the 
beginning  were  Belgium  and  other  small  states  with  good 
credit.  The  larger  countries  did  not  venture  to  assume 
the  financial  burdens  of  owning  and  operating  railroads 
on  a  large  scale  until  many  years  later.  The  strong 
agitation  for  the  complete  nationalization  of  railways  in 
Prussia,  Austria,  Italy,  and  other  Continental  countries 
came  in  the  seventies.  Prussia  and  Italy  bought  theirs 
then.  Several  European  countries  have  during  recent 
years  been  proceeding  in  the  direction  of  state  owner- 
ship as  rapidly  as  their  financial  condition  will  permit. 

The  variations  in  the  railway  policies  of  different 
countries  are  in  part  due  to  economic  causes  which  are 
quite  independent  of  the  political  or  financial  conditions 
just  referred  to.  In  Egypt,  India,  South  Africa,  'New 
Zealand,  the  Australian  colonies,  and  other  states  which 
the  English  have  recently  occupied  for  industrial  and  com- 
mercial reasons,  the  railways  have  been  built  and  operated 
by  the  governments  of  these  dependencies  for  the  sake 
of  developing  the  economic  resources  of  the  countries  as 
rapidly  as  possible.  These  colonial  governments  have  an 
industrial  character  which  well  consists  with  the  owner- 
ship and  managernent  of  railways. 

Each  country  has  a  railway  history  of  its  own,  which 
has  been  determined  by  the  social,  political,  and  eco- 
nomic conditions  peculiar  to  it.  This  being  so,  there 
can  manifestly  be  no  one  policy  of  governmental  con- 
trol of  railways  that  it  could  be  advantageous  for  all 
countries  to  adopt.  The  relation  of  the  railways  to  the 
state  is  a  problem  which  each  country  must  solve  for 
itself.      The   adjustment  to  be  made   depends   upon  the 


348  AMERICAN  RAILWAY  TRANSPORTATION 

conditions  which  are  peculiar  to  its  own  national,  social, 
and  industrial  evolution. 

REFERENCES    FOR    FURTHER    READING 

Hadley,  a.  T.     Railroad  Transportation,  chs,  xi-xiii. 

Hendrick,  F.     Railway  Control  by  Commissions,  chs.  iii  and  vi. 

Sterne,  S.  Railway  Systems  in  Europe.  Sen.  Misc.  Doc.  No.  66, 
vol.  ii,  1886-1887. 

Meyer,  B.  H.  Report  of  Industrial  Commission,  vol.  ix,  pp.  962- 
983. 

Administration  of  Prussian  Railroads,  Annals  American  Academy  of 
Political  and  Social  Science,  vol.  x,  pp.  389-423,  1897. 

CoHN,  G.  Results  of  State  Railway  Administration  in  Prussia,  Jour- 
nal of  Political  Economy,  vol.  i,  pp.  172-192. 

Note. — ^The  contracts  between  the  Italian  Government  and  the  rail- 
way companies  date  from  July  1,  1885,  and  are  terminable  after  twenty 
years  upon  two  years'  notice.  On  the  28th  of  April,  1903,  both  parties 
gave  notice  of  the  abrogation  of  the  contracts  July  1, 1905.  According 
to  Professor  B.  H.  Meyer,  "  Dissatisfaction  with  present  conditions  is  uni- 
versal. Passengers  complain  of  vexatious  delays  and  general  irregularity. 
Shippers  chafe  under  rates  alleged  to  exceed  those  of  surrounding  coun- 
tries by  25  to  30  per  cent,  not  to  mention  lack  of  cars  and  intolerable 
slowness  in  speed.  Railway  employees  are  discontented  because  the  com- 
panies have  failed  to  live  up  to  the  terms  of  their  contracts  with  respect 
to  hours,  wages,  and  holidays.  Lastly,  the  Government  is  dissatisfied  be- 
cause, contrary  to  the  anticipations  of  1885,  the  State  has  not  only  received 
no  financial  benefits,  but  it  has  been  compelled  to  make  up  deficits  which, 
since  1895,  have  exceeded  $40,000,000  annually." — Annals  of  the  Ameri- 
can Academy  of  Political  and  Social  Science,  vol.  xxiii,  p.  139. 


CHAPTEK   XXV 

REGULATION    OF    RAILWAYS    BY    THE    AMERICAN    STATE 
GOVERNMENTS THE    STATE    COMMISSIONS 

In  the  United  States  as  in  the  United  Kingdom  the 
Government  has  sought  to  supervise  or  regulate  rather 
than  to  monopolize  the  business  of  rail  transportation. 
By  our  Constitution  the  power  "  to  regulate  commerce 
with  foreign  nations,  and  among  the  several  States  and 
with  the  Indian  tribes  "  is  vested  in  Congress,  while  each 
State  has  authority  over  the  commerce  that  does  not 
pass  its  boundaries.  The  regulation  of  international  and 
interstate  commerce  is  vested  in  Congress;  the  control 
of  intrastate  commerce  is  exercised  by  the  several  States 
and  Territories.  There  are  49  governments  in  the  United 
States  possessing  authority  over  railroads.  The  problem 
of  railway  regulation  is  unavoidably  a  large  and  com- 
plicated one  in  a  country  so  extensive  as  ours,  and  the 
division  of  political  authority  resulting  from  our  federal 
plan  of  government  has  made  the  problem  a  more  com- 
plex one  than  it  would  be  were  there  only  one  controlling 
authority,  as  is  the  case  in  the  United  Kingdom,  France, 
Austria,  and  most  other  European  countries. 

The  States  preceded  the  Federal  Government  with 
legislation  for  the  regulation  of  railways.  The  State 
alone  could  charter  a  corporation  to  construct  and  oper- 
ate a  railroad  within  its  borders,  and,  as  the  corporation 
derived  its  powers  from  its  charter,  the  States  were  in  a 
position  to   exercise  such  control  over  the  railroads   as 

849 


350  AMERICAN  RAILWAY  TRANSPORTATION 

they  chose  to  exert.  The  control  which  was  actually 
exercised  was  slight — much  less  thorough  in  many  particu- 
lars than  the  public  welfare  demanded.  The  tendency 
in  this  country  has  been  to  minimize  Government  inter- 
ference with  railways  as  much  as  we  have  thought  it 
possible  to  do  without  jeopardizing  public  interests,  but 
the  minimum  of  interference  which  we  have  considered 
safe  has  not  always  been  the  same.  During  the  period 
from  1840  to  1870  many  States  gave  aid  to  railroad 
construction,  and  from  1850  to  1870  the  National  Gov- 
ernment assisted  the  Western  lines.  The  States  also, 
showed  some  tendency  to  regulate  the  railway  compa- 
nies, but  Government  interference  was  rather  for  super- 
vision than  for  regulation.  From  1850  to  1870  there 
was  but  little  effort  made,  outside  of  New  England,  even 
to  supervise  the  railway  business.  This  was  the  period 
of  the  dominance  of  the  laissez  faire  or  let-alone  doc- 
trine of  government.  Our  experience  during  this  period, 
however,  taught  us  that  we  had  placed  too  much  confi- 
dence in  the  efficiency  of  unrestrained  interrailway  com- 
petition as  a  regulator  of  railway  business;  consequently 
during  the  past  thirty  years  most  States  as  well  as  Con- 
gress have  endeavored  to  control  the  relations  of  the 
railroads  to  each  other  and  to  the  public,  and  the  pres- 
ent tendency  in  the  States  is  toward  an  increasingly 
stringent  regulation. 

In  the  beginning  an  effort  was  made  to  subject  the 
railroads  to  the  kind  of  regulation  that  had  been  exercised 
over  the  turnpike  roads  and  canals.  It  was  supposed 
that  the  railway  was  only  an  improved  road,  and  that 
shippers  and  travelers  would  use  their  own  vehicles  for 
more  or  less  of  the  traffic.  The  early  railway  charters, 
being  modeled  after  the  canal  and  turnpike  charters  that 
had  preceded  them,  not  only  contained  provisions  regard- 
ing the  organization  of  the  corporation  and  the   exer- 


STATE  REGULATION  OP  RAILWAYS  351 

cise  of  the  State's  power  of  eminent  domain  to  secure  a 
right  of  way,  but  also  included  sections  regarding  the 
erection  of  toll-gates  and  the  regulation  of  the  tolls  or 
charges  which  might  be  made.  In  many  cases  the  char- 
ters fixed  the  maximum  charges,  and  in  other  instances — 
especially  in  the  ISTew  England  States — the  railway  com- 
panies were  permitted  to  fix  their  own  charges,  subject 
to  periodical  revision  by  the  States  in  case  the  net  earn- 
ings should  exceed  a  stated  per  cent  of  the  capital. 

Charter  and  statute  provisions  regarding  toll-gates 
on  railroads  soon  disappeared;  but  the  policy  of  fixing 
maximum  rates  and  fares  for  trafiic  by  railroad  was  con- 
tinued to  some  extent.  However,  the  charter  stipulations 
and  other  early  legislative  enactments  fixing  maximum 
rates  or  maximum  profits  exerted  very  little  influence 
upon  the  actual  charges  of  the  railways,  because  the 
limits  set  were  placed  so  high.  The  maximum  rates  fixed 
by  the  charters  were  considerably  higher  than  the  rail- 
roads actually  charged.  Furthermore,  it  was,  and  has 
always  been,  easy  for  a  company  to  keep  its  net  earnings 
from  exceeding  a  fixed  per  cent  of  its  capital  as  long  as 
it  has  the  power  of  increasing  its  capitalization  by  the 
issue  of  new  stock. 

Although  the  charter  limitations  on  charges  and 
profits  proved  ineffective,  there  was  no  disposition  on  the 
part  of  the  State  governments  before  1870  to  pass  laws 
fixing  rates  and  fares.  The  public  thought  it  might  safely 
depend  on  interline  competition  for  protection  against 
exorbitant  charges.  Indeed,  the  railroads  proved  to  be 
of  such  great  assistance  to  the  development  of  the  coun- 
try that  the  chief  concern  of  the  public,  particularly  in 
the  Western  States,  was  to  secure  as  many  lines  as  possi- 
ble. There  was  little  disposition  to  impose  restrictions 
on  a  company  proposing  to  build  a  new  road.  In  many 
States  general  laws  were  passed  under  which   railroad 


352  AMERICAN  RAILWAY  TRANSPORTATION 

companies  might  be  chartered  without  securing  a  special 
act  of  the  Legislature.  The  public  did  not  think  it  neces- 
sary for  the  Government  to  regulate  the  location,  capital- 
ization, construction,  and  operation  of  the  roads.  Com- 
petition and  "  the  laws  of  trade  ''  it  was  thought  would 
attend  to  those  matters.  In  this  regard  we  acted  differ- 
ently from  most  European  countries. 

The  agency  now  employed  by  two-thirds  of  the  States 
for  the  supervision  or  regulation  of  railways  is  a  com- 
mission. The  first  railroad  commissions  were  created  in 
New  England,  where  they  were  appointed  for  two  pur- 
poses: (1)  to  appraise  the  value  of  the  land  which  the 
railroad  companies  might  need  to  take  from  private  per- 
sons with  whom  satisfactory  terms  of  purchase  could  not 
be  made;  (2)  to  apportion  the  receipts  and  expenditures 
of  an  interstate  road  among  the  States  in  which  the  road 
conducted  its  business.  The  States  considered  this  ap- 
portionment necessary,  because  they  had  placed  in  the 
railway  charters  limitations  on  the  charges  and  profits 
of  the  companies.  The  commissions  established  for  these 
two  purposes  were  given  other  duties  of  a  supervisory 
character.  To  quote  the  Khode  Island  law  of  1839,  they 
were  to  examine  and  report  on  "  the  state,  condition,  and 
proceedings  of  the  several  railroad  companies,  so  far  as 
the  public  interest  may  require  the  same."  The  commis- 
sioners were  to  inform  the  Legislature  regarding  the 
financial  affairs  of  the  companies,  and,  as  the  New  Hamp- 
shire law  of  1844  provided,  to  report  whether  the  com- 
panies were  observing  the  provisions  of  their  charters 
and  of  the  laws  of  the  State.  Probably  the  strongest 
motive  of  the  States  in  the  early  supervision  of  railroads 
was  the  desire  to  lessen  the  number  of  accidents.  For 
this  reason  mainly  a  commission  was  established  by  Con- 
necticut in  1853,  by  Vermont  in  1855,  and  by  Maine  in 
1858. 


STATE  REGULATION  OF  RAILWAYS  353 

The  attempts  of  the  States  to  supervise  railways, 
whether  bj  commissions  or  by  other  executive  officers 
of  the  Government,  suggested  the  need  of  systematic 
statistics  regarding  the  financial  and  traffic  operations 
of  the  companies.  In  several  States — e.  g.,  Ohio,  ISTew 
York,  and  New  Jersey — the  officers  appointed  to  collect 
these  statistics  were  forerunners  of  the  railway  commis- 
sions. They  performed  one  of  the  most  important  serv- 
ices for  which  commissions  are  created. 

Prior  to  the  civil  war  several  States  had  begun  in  a 
small  way  to  supervise  railroad  transportation,  and  in 
each  of  the  New  England  States,  except  Massachusetts, 
a  commission  assisted  in  this  work.  Briefly  stated,  the 
functions  exercised  by  the  early  commissions  were  the 
appraisement  of  the  value  of  private  property  taken  by 
the  railroads,  the  apportionment  of  the  receipts  and  ex- 
penditures of  interstate  roads  among  the  States  con- 
cerned, the  inspection  of  roads  and  the  enforcement  of 
laws  to  prevent  accidents,  the  investigation  of  the  affairs 
of  railway  corporations  to  determine  whether  the  com- 
panies were  violating  their  charters  or  the  State  laws,  or 
whether  the  corporations  were  giving  the  citizens  or  cor- 
porations of  other  States  greater  advantages  than  they 
were  giving  those  of  the  State  which  had  incorporated 
the  companies,  and  to  collect  statistical  data  concerning 
the  financial  affairs  and  business  operations  of  the  rail- 
road corporations.  With  the  exception  of  the  appraisal 
of  the  value  of  private  property  taken  for  railway  uses,  all 
these  functions  are  now  exercised  by  the  existing  State 
commissions.  Numerous  other  duties  have  been  assigned 
to  those  bodies  as  the  States  have  attempted  to  deal  with 
new  phases  of  the  problem  of  railway  regulation. 

Shortly  before  1870  there  arose  a  public  demand  for 
a  more  effective  regulation  of  railway  transportation. 
The  main  cause  of  the  demand  was  the  growing  preva- 
24 


354  AMERICAN  RAILWAY  TRANSPORTATION 

lence  of  gross  discriminations  in  rates  and  fares.  Unre- 
strained competition  led  to  such  abuses  that  the  people, 
both  of  the  Eastern  and  Western  States,  passed  more 
stringent  laws  to  regulate  the  relations  of  the  railways 
with  each  other  and  with  the  public.  In  the  Eastern 
States,  where  the  principal  railway  lines  now  in  that  section 
had  already  been  constructed,  and  where  the  industries  had 
been  diversified  and  developed  to  a  considerable  degree,  the 
laws  enacted  were  more  conservative  than  were  the  laws 
passed  by  the  Western  and  Southern  States.  The  Eastern 
States  in  dealing  with  "  the  railway  problem  "  depended 
on  publicity  and  the  force  of  public  opinion  to  correct  the 
abuses;  they  authorized  their  governments  to  supervise 
the  railways  first  of  all,  and  to  regulate  by  force  only 
when  absolutely  necessary.  In  the  West  and  South,  how- 
ever, the  feeling  against  the  railroads  was  much  more 
intense;  the  people  did  not  believe  publicity  and  public 
opinion  would  bring  about  satisfactory  relations  between 
the  carriers  and  the  public;  they  preferred  rather  to 
depend  on  publicity  and  penalties.  The  Eastern  States 
established  commissions,  with  power  to  investigate  rail- 
way practises  and  to  report  the  facts  to  the  Legislature 
and  the  people,  and  to  suggest  what  laws  should  be  passed. 
The  Western  and  Southern  States  established  commis- 
sions with  power  to  issue  orders  and  to  enforce  the  orders 
by  legal  procedure.  The  Eastern  commissions  could 
supervise  and  advise,  the  others  could  supervise  and  regu- 
late; one  had  advisory  powers,  the  other  mandatory  au- 
thority. 

The  Massachusetts  commission,  established  in  1869, 
may  be  taken  as  a  type  of  the  supervisory-advisory  class., 
The  commission  consists  of  three  men  appointed  by  the 
Governor  with  the  consent  of  the  Council.  The  term  of 
office  is  three  years,  one  person  being  appointed  each 
year.     The  board  has  power: 


STATE  REGULATION  OF  RAILWAYS  355 

1.  To  examine  railway  corporations  and  determine 
whether  they  are  fulfilling  the  terms  of  their  charters  and 
are  obeying  the  laws. 

2.  To  supervise  the  railroads  "with  reference  to  the 
security  and  accommodation  of  the  public.'^ 

3.  To  investigate  complaints  against  the  railroads.  It 
has  the  power  to  summon  witnesses  and  examine  them 
under  oath.  It  may  also  institute  investigations  on  its 
own  motion. 

4.  To  prescribe  a  uniform  system  of  keeping  railway 
accounts,  and  to  inspect  the  books  and  accounts  of  railway 
corporations. 

5.  To  act  as  a  board  of  arbitration  for  the  settlement 
of  disputes  between  railroad  corporations  and  the  public. 

6.  To  make  an  annual  report  to  the  Legislature  dis- 
cussing "  the  actual  working  of  the  system  of  railroad 
transportation  in  its  bearing  upon  the  business  and  pros- 
perity of  the  commonwealth,"  and  suggesting  such  legis- 
lation as  may  seem  appropriate. 

From  this  list  of  the  chief  powers  possessed  by  the 
Massachusetts  commission  it  will  be  seen  that  the  enforce- 
ment of  the  decisions  of  the  commission  is  left  to  public 
opinion.  In  the  case  of  Massachusetts  the  commission 
has  enjoyed  the  confidence  of  the  public,  and  has  been 
very  successful  in  regulating  the  railways.  When  legis- 
lation has  been  needed,  the  recommendations  of  the  com- 
mission have  usually  been  accepted. 

The  problem  of  railway  regulation  in  the  "West  dif- 
fered very  much  from  the  problem  in  the  Eastern  States. 
In  the  West  the  construction  of  railroads  began  later,  and 
the  public  was  concerned  mainly  with  securing  the  needed 
lines.  The  public  aid,  State  and  local,  though  large  in 
the  East,  was  much  greater  in  the  West.  There  was 
little  thought  given  to  railway  regulation  in  the  West 
until  after  the  civil  war;  indeed,  such  was  the  confidence 


356  AMERICAN  RAILWAY   TRANSPORTATION 

in  the  efficiency  of  competition  to  regulate  the  business 
of  railway  transportation  that  the  necessity  for  State 
regulation  was  not  realized. 

Public  opinion  in  the  Western  States  underwent  a 
very  sudden  and  complete  change  during  the  five  years 
succeeding  1867.  The  fierce  competition  of  recently 
formed  through  lines  connecting  Western  cities  with 
Chicago,  and  of  the  trunk  lines  joining  Chicago  with  the 
Atlantic  seaboard,  led  to  personal  discrimination  and  to 
a  great  reduction  in  through  competitive  rates.  Rates  at 
local  non-competitive  points  being  left  unchanged  or 
changed  but  slightly,  the  result  was  excessive  discrimina- 
tions between  places.  The  farmers  and  people  of  the 
smaller  towns,  who  had  aided  the  railway  corporations 
liberally  in  constructing  the  roads,  were  paying  high 
rates,  while  the  shippers  in  the  large  cities  were  favored 
with  low  rates.  At  the  same  time  Eastern  capitalists 
were  constructing  new  lines  of  railroads  in  the  West 
with  great  rapidity.  These  railroad  corporations,  com- 
posed largely  of  non-resident  men,  seemed  to  be  prosper- 
ing greatly.  Prices  meanwhile  were  falling  from  the 
high  level  which  they  had  been  given  by  the  inflation  of 
the  currency  during  the  war.  Falling  prices  for  agri- 
cultural products,  due  to  the  contraction  of  the  currency 
and  to  the  great  increase  in  the  area  devoted  to  farming, 
were  bringing  down  the  farmer's  profits  and  making  him 
discontented. 

The  farmers  and  townsmen  of  the  Western  States 
saw  no  reason  why  the  companies  should  not  give  local 
points  as  low  rates  as  had  been  accorded  to  the  large 
cities.  They  did  not  suppose  the  railroads  were  doing 
the  competitive  business  merely  for  pleasure,  nor  that 
the  roads  were  carrying  any  traffic  at  a  loss.  The  rail- 
roads must  be  making  money  on  their  competitive  busi- 
ness, and  ought  to  lower  their  local  rates  to  the  level  of 


STATE  REGULATION  OF  RAILWAYS  357 

competitive  charges.  This  reasoning  was  not  altogether 
sound,  and  the  people  of  the  West  did  not  fully  under- 
stand the  railway  problem;  but  they  knew  that  the  rail- 
roads were  unjustly  .discriminating,  and  they  were  con- 
vinced that  local  rates  were  disproportionately  high. 
They  believed  also  that  the  railroad  corporations  were 
public  carriers,  performing  a  service  of  a  public  nature, 
the  charges  for  which  could  be  regulated  by  public  au- 
thority. The  companies,  however,  at  first  ignored  the 
public,  and  then  defied  them.  The  public  accepted  the 
gage  of  battle,  the  railroad  companies  were  defeated,  and 
the  so-called  "  granger  laws  "  and  "  granger  decisions  " 
were  the  result. 

The  laws  which  the  Western  States  enacted  between 
1870  and  1880  for  the  regulation  of  railways,  including 
the  laws  establishing  State  railroad  commissions,  are  com- 
monly called  granger  legislation,  because  of  the  support 
which  the  granger  societies  gave  to  the  struggle  to  secure 
the  legislation.  The  name  is  not  altogether  accurate, 
because  the  agitation  for  State  control  of  railways  in  the 
West  became  strong  before  the  Patrons  of  Husbandry  or 
the  grangers  had  been  fully  organized.  In  the  begin- 
ning the  agitation  for  State  control  was  due  to  a  farmers' 
movement  to  which  the  people  of  the  towns  gave  their 
support.  Later — that  is,  from  1872  on — the  granger 
societies  actively  aided  the  movement,  and  became  its 
strongest  supporter.  Hence  the  name  granger  legis- 
lation. 

The  State  regulation  of  railroads  in  the  West  was 
first  undertaken  by  Hlinois,  and  the  Hlinois  commission 
may  be  taken  as  a  type  of  the  commission  with  power, 
the  supervisory-mandatory  commission.  In  1870  the 
people  of  Illinois  revised  their  Constitution,  and  included 
in  the  new  document  a  clause  enjoining  upon  the  Legis- 
lature the  enactment  of  laws  for  the  regulation  of  rail- 


358  AMERICAN  RAILWAY  TRANSPORTATION 

ways.  To  carry  out  this  provision  of  the  Constitution, 
a  law  was  approved  April  7,  1871,  prescribing  maximum 
rates  and  fares,  and  prohibiting  discriminations.  Another 
act,  approved  a  few  days  later,  established  a  railroad 
and  warehouse  commission  to  supervise  the  railways  and 
to  assist  in  enforcing  the  laws  for  their  regulation.  The 
law  approved  April  7,  1871,  was  displaced  in  1873  by 
a  law  making  it  the  duty  of  the  commission  to  prescribe 
"  a  schedule  of  reasonable  maximum  rates  of  charges 
for  the  transportation  of  passengers  and  freight." 

The  Illinois  commission,  like  the  one  for  Massachu- 
setts, has  power  to  investigate  the  railroads  as  to  their 
physical  condition  and  management,  and  to  prescribe  the 
form  of  reports  to  be  made  by  the  companies.  In  addi- 
tion to  possessing  most  of  the  powers  held  by  the  Massa- 
chusetts commission,  the  Illinois  board  can  prescribe 
schedules  of  maximum  charges,  and  can  prosecute  the 
railway  companies  either  to  compel  them  to  obey  the  com- 
mission's decisions  or  to  force  theni  to  obey  the  laws  regu- 
lating railway  transportation.  Furthermore,  if  an  Illi- 
nois company  charges  a  rate  higher  than  that  which  the 
commission  has  declared  reasonable,  the  company  is  com- 
pelled to  prove  that  the  rate  which  it  has  charged  is  rea- 
sonable. The  State  is  right  until  proved  wrong;  the 
burden  of  proof  is  thrown  upon  the  carrier.  This  was 
an  important  modification  of  the  common  law,  which 
compelled  the  State  to  prove  its  case  when  it  questioned 
the  reasonableness  of  a  rate  charged  by  a  common  carrier. 

Other  States  in  the  West  and  South  passed  laws  simi- 
lar to  the  Illinois  statutes  just  described.  In  1874  Iowa 
and  Wisconsin  passed  laws  prescribing  maximum  railway 
charges.  The  same  year  Minnesota  established  a  com- 
mission endowed  with  power  to  fix  rate  schedules.  In 
1879  Georgia  instituted  a  commission  with  power  to  pre- 
scribe rates.    In  1879  California  did  what  no  other  State 


STATE  REGULATION  OF  RAILWAYS  359 

has  done  by  adopting  a  Constitution  in  which  the  State 
Legislature  was  required  to  establish  a  railroad  commis- 
sion with  power  to  fix  "  rates  of  charges  for  the  trans- 
portation of  passengers  and  freight  by  railroad  or  other 
transportation  companies."  Such  a  commission  was  es- 
tablished the  following  year.  Since  then  several  other 
States  have  established  mandatory  commissions.  The 
map  on  page  360  shows  what  States  have  commissions 
now,  and  indicates  the  type  of  each  commission. 

The  enforcement  of  the  "  granger  laws  "  was  vigor- 
ously opposed  by  the  railroad  companies,  who  maintained 
that  their  business  was  a  private  one,  and  that  the  State 
had  no  power  to  fix  the  rates  which  they  should  charge 
for  their  services.  The  railroads  claimed,  moreover,  that 
the  States  which  had  granted  a  charter  to  a  company 
giving  it  power  to  make  reasonable  charges  for  its  serv- 
ices could  not  prescribe  the  rates  to  be  charged  by  the 
company  without  the  violation  of  a  contract.  It  had 
been  decided  by  the  United  States  Supreme  Court  in 
1819,  in  the  famous  Dartmouth  College  case,  that  in 
granting  a  charter  a  State  entered  into  a  contract  rela- 
tion. The  courts,  however,  did  not  uphold  the  contention 
of  the  railway  companies,  and  in  1877  the  Supreme  Court 
of  the  United  States,  in  the  noted  granger  cases,  declared 
valid  the  State  legislation  fixing  railway  charges.  The 
railway  corporations  were  compelled  to  recognize  the 
public  nature  of  the  service  they  were  performing,  and 
to  acknowledge  the  authority  of  the  States  to  regulate  the 
railway  business,  even  to  fixing  the  charges  for  the  same. 

The  Supreme  Court  gave  the  States,  in  1877,  greater 
authority  over  railroads  than  they  now  possess.  The 
granger  laws  fixed  rates  on  all  the  traffic  by  rail  with- 
in the  State.  Though  commodities  might  be  shipped 
beyond  the  State  or  enter  the  State  from  outside,  and 
thus    become    interstate    commerce,    the    railroads    must 


STATE  REGULATION  OF  RAILWAYS  361 

carry  the  goods  while  within  the  State  at  such  rates 
as  the  State  had  fixed.  Although  the  Constitution 
of  the  United  States  vests  in  Congress  the  power 
to  regulate  commerce  among  the  States,  the  Supreme 
Court  held  in  the  case  of  Peik  vs.  Chicago  and  E'orth- 
western  Railway  Company  that  "  until  Congress  acts  in 
reference  to  the  relations  of  this  company  to  interstate 
commerce,  it  is  certainly  within  the  power  of  Wisconsin 
to  regulate  its  fares,  etc.,  so  far  as  they  are  of  domestic 
concern."  The  language  of  the  court  apparently  gave 
the  States  power  to  regulate  not  only  intrastate  but  also 
interstate  traffic  until  Congress  should  decide  to  exercise 
the  power  over  interstate  commerce  conferred  upon  it  by 
the  Constitution.  The  States  so  interpreted  their  pow- 
ers until  1886,  when  the  court  in  the  case  of  the  Wabash, 
St.  Louis  and  Pacific  Railway  Company  vs.  Illinois  re- 
viewed its  language  and  decided  that  the  States  had  no 
right  to  regulate  interstate  commerce,  but  must  confine 
themselves  to  intrastate  traffic.  This  Wabash  decision 
greatly  limited  the  authority  of  the  States  over  railroads, 
and  was  one  of  the  influences  that  led  Congress  to  pass  the 
existing  Interstate  Commerce  Act. 

The  early  granger  laws  were  the  first  efforts  of  a 
thoroughly  aroused  public  to  apply  vigorous  remedies  to 
a  severe  social  malady,  and  it  is  possible  that  the  States 
attempted  to  proceed  too  rapidly.  Minnesota  repealed 
her  law  of  1874  the  year  after  its  passage,  and  put  in  its 
place  a  law  providing  for  only  one  commissioner  with 
little  more  than  supervisory  powers.  This  law  remained 
in  force  for  ten  years,  when  a  stronger  statute  was  again 
enacted.  In  1878  Iowa  repealed  her  law  of  1874,  by 
which  a  schedule  of  rates  had  been  fixed,  and  established 
a  commission  without  the  tariff-making  function.  Ten 
years  of  experience  under  this  resulted  in  the  establish- 
ment of  a  mandatory  commission  with  the  power  to  pre- 


362  AMERICAN  RAILWAY  TRANSPORTATION 

scribe  rates.  "Wisconsin  abandoned  her  granger  law  after 
giving  it  only  a  two  years'  trial.  This  so-called  Potter 
law  of  Wisconsin  was  tlie  most  stringent  of  the  granger 
statutes,  and  was  in  force  from  1874  to  1876,  at  a  time 
of  severe  financial  depression.  Unfortunately,  the  Wis- 
consin law,  instead  of  being  modified,  was  discarded  in 
1876,  and  replaced  by  a  statute  providing  for  one  rail- 
road commissioner  with  very  limited  functions.  The 
Illinois  commission  was  kept  a  board  with  mandatory 
powers ;  it  was  successful,  and  exerted  a  strong  influence 
upon  the  form  of  organization  adopted  by  the  other 
States  in  establishing  railway  commissions. 

The  trend  of  English  and  American  legislation  for  the 
regulation  of  railways  is  toward  commissions  with  power 
to  execute  the  laws,  to  enforce  their  decisions,  and  to 
prescribe  railway  rates.  In  1888  the  State  of  Iowa 
changed  from  an  advisory  to  a  regulative  commission 
with  rate-making  power,  and  the  Iowa  law  has  strongly 
influenced  the  legislation  of  other  States.  In  1897  South 
Dakota  reorganized  its  commission  by  a  statute  which 
follows  the  Iowa  law  very  closely.  This  same  year 
also  Florida  and  Tennessee  reestablished  their  railroad 
commissions  and  endowed  them  with  mandatory  rate- 
fixing  functions.  These  facts,  however,  do  not  prove  that 
the  advisory  commission  may  not  be  successful  under 
certain  conditions.  The  Massachusetts  and  other  Eastern 
commissions  have  succeeded  quite  as  well  as  have  those  of 
the  West  and  South.  Where  the  economic  and  trans- 
portation conditions  are  fairly  stable  and  the  friction 
between  the  railways  and  the  public  is  not  great,  and 
where  public  sentiment  is  readily  crystallized  into  legis- 
lation, a  railway  commission  whose  functions  are  to  edu- 
cate the  people  and  teach  the  legislatures  what  to  do, 
can  succeed,  as  is  shown  by  the  experience  of  the  'New 
England  commissions,  in  securing  the  regulation  of  rail- 


STATE  REGULATION  OF  RAILWAYS  363 

way  transportation.  Whether  a  State  in  establishing  a 
railway  copimission  should  adopt  the  supervisory  or  the 
mandatory,  type  depends  upon  social  and  economic  con- 
ditions. 

Under  our  system  of  government  the  street-railway 
companies  are  amenable  to  two  authorities:  the  city  in 
which  they  operate  their  lines,  and  the  State  from  which 
they  derive  their  charters.  The  States  possess  the  au- 
thority to  regulate  street-railway  transportation,  and  the 
six  New  England  States  and  New  York  have  exercised 
their  powers  to  some  extent.  In  Massachusetts  the  State 
railway  commission  must  approve  of  the  location  of  a 
proposed  street-railway  before  the  line  can  be  constructed, 
and  the  commission  may  refuse  to  permit  the  road  to  be 
constructed  if  it  does  not  consider  that  there  is  a  "  suffi- 
cient public  demand  or  necessity  to  require  or  justify 
the  building  of  the  railway  upon  the  proposed  route." 
The  State  railway  commission  of  Massachusetts  can  also 
control  the  capitalization  of  the  street-railway  companies. 
By  the  law  passed  in  1894,  the  companies  can  issue  "  only 
such  amounts  of  stocks  and  bonds  as  may  from  time  to 
time,  upon  investigation  by  the  Board  of  Railroad  Com- 
missioners, be  deemed  and  be  voted  by  them  to  be  rea- 
sonably requisite  for  the  purposes  for  which  such  issue 
of  stocks  or  bonds  has  been  authorized." 

In  1895  New  Hampshire  passed  a  law  giving  its  rail- 
road commission  a  like  control  over  street-railway  capital- 
ization. This  New  Hampshire  law  gives  the  Supreme 
Court  of  the  State  power  to  decide  whether  the  public  good 
requires  the  proposed  road.  Before  deciding  the  question 
the  court  is  required  to  refer  it  to  the  railroad  commission 
or  a  board  of  referees  for  a  finding  of  facts.  The  power 
of  the  railroad  commissions  of  Massachusetts  and  New 
Hampshire  to  control  the  increases  in  capitalization  ap- 
plies to  both  steam-railroad  companies  and  street-railway 


364  AMERICAN  RAILWAY  TRANSPORTATION 

corporations.  In  Texas,  also,  by  a  law  passed  in  1893, 
the  commission  is  vested  with  authority  to  control  the 
amount  of  stocks  and  bonds  which  a  steam-railroad  com- 
pany may  issue.  Connecticut  now  limits  the  amount  of 
bonds  that  a  street-railway  company,  chartered  after 
1893,  may  issue,  to  50  per  cent  of  the  actual  cost  of 
construction  and  equipment  of  the  road  bonded,  and  com- 
pels a  company  which  proposes  to  build  a  street-railway 
paralleling  an  existing  street-railway  or  steam-railroad 
to  satisfy  a  judge  of  the  superior  court  that  "  the  public 
convenience  and  necessity  require  the  construction  of 
such  street-railway."  Unlike  Massachusetts  and  ]^ew 
Hampshire,  Connecticut  has  not  conferred  on  her  rail- 
road commission  the  function  of  regulating  the  location 
and  capitalization  of  her  street-railways.  Maine  gives 
her  railroad  commission  power  to  pass  upon  the  public 
necessity  of  a  proposed  street-railway.  The  same  is  true 
of  New  York  State.  In  Vermont  the  railroad  commis- 
sioners have  no  control  over  the  location  of  a  street-rail- 
way unless  the  street-railway  corporation  and  the  local 
authorities  fail  to  agree.  In  case  of  a  failure  to  agree, 
either  party  can  appeal  to  the  railroad  commissioners. 
In  Rhode  Island  the  railroad  commissioner  is  given  the 
same  authority  over  street-railways  as  over  other  rail- 
roads. He  has  general  supervisory  powers,  but  has  no 
power  to  decide  whether  a  road  shall  be  constructed  or 
what  its  capitalization  shall  be. 

In  all  these  seven  States  the  railroad  commission  col- 
lects statistics  of  the  street-railways  as  well  as  of  the 
steam-railroads.  In  Pennsylvania  also  the  Superintend- 
ent of  the  Bureau  of  Railways  includes  the  statistics  of 
street-railways  in  his  annual  report. 

The  foregoing  account  of  the  origin  of  the  State  rail- 
way commissions,  and  of  the  general  powers  with  which 
those  boards  have  been  vested,  shows  that  while  progress 


STATE  REGULATION  OF  RAILWAYS  365 

has  been  made  by  the  States  in  legislation  for  the  regula- 
tion of  railroad  transportation,  much  has  yet  to  be  accom- 
plished before  the  States  will  have  done  all  they  can  and 
ought  toward  solving  the  problem  of  railway  regulation. 
There  are  seventeen  States  and  Territories  which  have 
no  railway  commission  whatever,  and  there  are  several 
other  States  whose  commissions  have  been  endowed  with 
powers  entirely  inadequate  to  the  performance  of  the 
functions  they  should  exercise.  There  is  also  urgent  need 
for  greater  uniformity  in  the  laws  and  practises  of  the 
several  States  concerning  railway  supervision  and  regula- 
tion. The  laws  at  present  are  very  diverse.  Though 
each  State  can  supervise  and  regulate  only  its  domestic 
traffic,  it  deals  in  nearly  all  cases  with  corporations  which 
do  business  in  several  States.  These  corporations,  finding 
that  each  State  imposes  a  different  set  of  requirements 
upon  them  and  attempts  to  control  their  business  in  a 
manner  different  from  every  other  State,  are  often  dis- 
posed to  disregard  the  laws  of  the  States.  If  all  the 
State  commissions  were  attempting  to  do  the  same  thing 
by  uniform  methods,  they  would  be  able  to  accomplish 
much  more. 

Of  the  various  powers  of  the  commissions  which  de- 
mand revision  and  enlargement  in  order  to  render  them 
uniform  and  adequate,  there  are  none  so  important  as 
those  concerned  with  railway  accounting.  It  is  funda- 
mental to  the  regulation  of  the  railways  by  the  States 
that  there  should  be  one  uniform  system  of  accounts 
obtaining  in  all  the  States,  and  that  each  State  should 
have  those  accounts  publicly  audited  by  expert  railway 
accountants.  Each  State  must  possess  full  and  accurate 
knowledge  of  the  business  and  finances  of  its  railway  cor- 
porations; there  must  be  public  inspection  of  uniform 
accounts. 

The  State  railway  commissions  have  performed  useful 


366  AMERICAN  RAILWAY  TRANSPORTATION 

work.  Although  they  have  not  accomplished  all  that  was 
hoped  for,  yet  when  the  difficulties  of  the  task  assigned 
them  and  the  limitations  under  which  the  commissions 
have  worked  are  considered,  they  can  not  be  said  to  have 
been  a  failure.  The  retention  and  statutory  development 
of  the  State  commissions,  by  giving  them  uniform  and,  in 
the  case  of  several  commissions,  more  adequate  powers, 
seem  justified  by  what  has  thus  far  been  accomplished. 

EEFEEENCES    FOE    FUETHEE    EEADIIS^G 

Clabk,  F.  C.  State  Railroad  Commissions,  and  how  they  may  be 
made  Effective.  Publications  American  Economic  Association, 
vol.  vi,  No.  6,  1891. 

Meyer,  B.  H.  Railway  Regulation  under  Foreign  and  Domestic 
Laws.     Report  of  Industrial  Commission,  vol.  ix,  pp.  901-1004. 

Dixon,  F.  H.  State  Railroad  Control,  with  a  History  of  its  Develop- 
ment in  Iowa,   1896. 

Railroad  Control  in  Nebraska,  Political  Science  Quarterly,  vol.  xiii, 
1898. 

Martin.     History  of  the  Grange  Movement. 

Adams,  C.  F.     Railroads:  Their  Origin  and  Problems.     1878. 

Report  of  the  New  York  Legislative  Committee  of  1879.  [This  is 
usually  styled  the  Hepburn  report.  It  is  a  most  valuable  docu- 
ment.] 

Hendrick,  F.     Railway  Control  by  Commissions,  1900,  ch.  ix. 

Decisions  of  the  United  States  Supreme  Court :  Munn  vs.  Illinois  and 
Peik  vs.  Chicago  and  Northwestern  Railway  Company,  94  U.  S., 
lis  etseq.;  Wabash  vs.  Illinois,  118  U.  S.,  557. 

Annual  Reports  of  Proceedings  of  National  Association  of  Railway 
Commissioners,  published  by  Interstate  Commerce  Commission, 
Washington,  D.  C. 

Annual  Reports  of  the  State  Railroad  Commissions,  particularly  of 
the  Massachusetts,  New  York,  Illinois,  Iowa,  and  Texas  Com- 
missions. 

Railways  in  the  United  States  in  1902.  Part  IV.  "  State  Regulation 
of  Railways,"  published  by  the  Interstate  Commerce  Commis- 
sion, Washington,  D.  C. 


CHAPTER   XXYI 

EAILWAY   EEGULATION   BY   THE   FEDERAL   GOVERNMENT THE 

INTERSTATE    COMMERCE    COMMISSION 

Shortly  after  the  establishment  of  the  first  State  rail- 
way commissions  an  agitation  was  begun  for  the  Federal 
regulation  of  railroads.  The  demand  was  pressed  most 
urgently  by  the  people  of  the  middle  West,  who  were 
producing  great  quantities  of  grain  and  other  food  prod- 
ucts which  they  wished  to  market  in  the  eastern  part  of 
the  United  States  and  in  Europe.  After  the  close  of  the 
civil  war  the  industrial  development  of  the  upper  Missis- 
sippi Valley  was  especially  rapid,  and  the  need  for  cheaper 
transportation  facilities  was  keenly  felt. 

An  appeal  was  made  to  Congress  for  legislation,  and 
in  1872  President  Grant  recommended  Congress  to  ap- 
point a  committee  to  investigate  the  question  of  securing 
"  cheaper  transportation  of  the  constantly  increasing 
Western  and  Southern  products  to  the  Atlantic  sea- 
board." Such  a  committee  was  appointed  by  the  Senate. 
Its  chairman  was  William  Windom,  of  Minnesota,  and 
the  report  made  in  1874  contained  a  full  discussion  of 
the  regulation  of  railway  transportation.  The  Windom 
report  (Sen.  Rep.  307,  43d  Cong.,  1st  Sess.)  argued  at 
length  to  prove  that  Congress  had  the  constitutional 
power  not  only  to  regulate  railroads,  but  to  construct 
and  operate  them.  The  committee  did  not  recommend  that 
Congress  fix  the  rates  to  be  charged  by,  the  companies, 
but  suggested  that  Congress  should  improve  and  extend  the 

367 


368  AMERICAN  RAILWAY  TRANSPORTATION 

natural  waterways  and  should  build  a  freight  railroad  frorri 
the  Mississippi  Eiver  to  the  Atlantic.  This  recommenda- 
tion was  made  because  the  committee  thought  that  the 
surest  way  to  secure  cheap  rates  was  by  means  of  competi- 
tion, and  believing  that  the  railroad  companies  would  com- 
bine and  thus  avoid  competition  in  rate-making,  the  com- 
mittee advocated  "  the  State  ownership  or  control  of  one 
or  more  lines  which,  being  unable  to  enter  into  combina- 
tion, will  serve  as  regulators  of  other  lines." 

The  recommendations  of  the  Windom  committee  over- 
estimated the  necessity  of  enforcing  competition  in  rate- 
making  and  undervalued  the  ability  of  the  railroads 
to  cheapen  the  costs  of  moving  bulky  freight.  During 
the  ten  years  following  the  submission  of  the  Windom 
report  the  efficiency  of  the  railroads  as  freight  carriers 
was  so  increased  that  only  the  Great  Lakes,  the  largest 
rivers,  and  a  few  specially  well  located  canals  could  carry 
even  heavy  articles  as  cheaply  as  they  could  be  moved 
by  rail.  Competition  in  its  various  forms  reduced  rates 
on  long-distance  traffic  between  rival  cities  to  a  lower 
figure  than  the  public  had  supposed  possible;  but  the 
charges  on  local  traffic  to  and  from  the  stations  served  by 
only  one  railroad  were  not  correspondingly  reduced,  and 
gross  discriminations  resulted.  The  public  demand  for 
cheap  transportation  was  changed  to  a  demand  for  the 
abolition  of  unreasonable  discriminations. 

This  is  clearly  shown  by  the  second  important  Federal 
report  on  railway  regulation — the  one  made  in  1886  by 
a  committee  of  the  Senate  and  called  the  Cullom  report 
(Sen.  Rep.  No.  46,  49th  Cong.,  1st  Sess.),  from  the  chair- 
man of  the  committee,  Shelby  M.  Cullom,  of  Illinois. 
"  The  paramount  evil,"  said  the  Cullom  committee, 
"  chargeable  against  the  operation  of  the  transportation 
system  of  the  United  States  as  now  conducted  is  unjust 
discrimination  between  persons,  places,  commodities,  or 


FEDERAL  REGULATION   OF  RAILWAYS  369 

particular  descriptions  of  traffic.''  The  main  object  of 
Government  regulation  was  no  longer  considered  to  be  to 
secure  cheap  transportation,  but  to  insure  to  all  persons 
and  to  different  places  relatively  equitable  charges. 

A  year  after  the  Cullom  report  was  made  the  pres- 
ent Interstate  Commerce  Act  became  a  law.  Prior  to 
this  time  numerous  attempts  had  been  made  to  secure 
legislation.  January  20,  1874,  the  House  of  Representa- 
tives passed  the  McCreary  bill  (so  named  from  the  chair- 
man of  the  Committee  on  Railways  and  Canals)  with 
provisions  similar  to  the  ^^  granger  laws  "  which  several 
States  had  enacted.  The  country  as  a  whole  was  not  in 
favor  of  applying  the  granger  legislation  to  the  Federal 
regulation  of  railroads,  but  in  December,  1878,  the  House 
passed  the  Reagan  bill,  which  had  been  championed  by 
Representative  (later  Senator)  John  H.  Reagan,  of  Texas. 
This  was  a  conservative  measure  that  prohibited  pooling 
and  discriminations,  required  rates  to  be  published,  and 
placed  the  enforcement  of  the  law  in  the  hands  of  the 
courts  instead  of  a  commission.  The  bill  applied  only  to 
freight  traffic  and  to  that  carried  in  car-load  lots.  The 
Senate  did  not  act  on  the  Reagan  bill  of  1878.  In  1885 
the  Senate  and  the  House  each  passed  a  bill,  but  legisla- 
tion was  prevented  by  the  differences  of  the  two  houses 
as  to  the  provisions  to  be  included  in  the  law.  It  took 
two  years  for  the  House  and  Senate  to  agree,  and  then, 
February  4,  1887,  they  compromised  on  the  law  which, 
with  few  changes,  is  the  one  now  in  force. 

As  the  States  endeavored  to  regulate  the  railroads 
they  realized  more  and  more  that  the  problems  to  be  dealt 
with  were  closely  connected  with  interstate  commerce 
and  could  not  be  handled  successfully  without  the  cooper- 
ation of  the  E'ational  Government.  The  demand  for 
Federal  action  was  made  by  the  Eastern  as  well  as  the 
Western  and  Southern  sections  of  the  country  as  soon 
25 


3T0  AMERICAN  RAILWAY  TRANSPORTATION 

as  the  fact  was  clearly  ascertained  that  the  authority  of 
each  State  over  railway  charges  was  limited  strictly  to 
the  traffic  that  did  not  pass  the  boundaries  of  the  State. 
Before  1886  several  of  the  States  regulated  charges  on 
all  the  traffic  originating  at  or  destined  to  points  within 
their  respective  boundaries.  In  1886  the  Supreme  Court 
in  the  Wabash  decision,  referred  to  in  the  previous  chapter, 
limited  the  authority  of  the  State  strictly  to  the  intra- 
state traffic  and  excluded  that  moving  from  one  State  to 
another.  This  decision  of  the  Supreme  Court  greatly  nar- 
rowed the  jurisdiction  of  each  State  over  railway  charges, 
and  increased  the  need  for  congressional  action. 

The  interstate  commerce  law  as  it  now  stands  con- 
tains twenty-two  sections,  and  applies  to  such  passenger 
and  freight  traffic,  carried  by  railroad  or  by  railroad  and 
water,  as  does  not  terminate  in  the  State  or  Territory  of 
its  origin.  It  does  not  apply  to  intrastate  business  or  to 
interstate  traffic  carried  by  an  all-water  route,  or  to 
express  companies. 

The  first  section  prohibits  unreasonable  or  extortion- 
ate charges,  section  two  declares  unlawful  all  unjust  per- 
sonal discriminations,  and  section  three  forbids  unreason- 
able discriminations  between  localities  and  different  kinds 
of  traffic.  These  three  sections  contain  the  essential  prin- 
ciples of  the  statute,  and  were  taken,  with  minor  changes, 
from  the  English  act  of  1854.  Extortionate  charges  for 
transportation  had  long  been  illegal  at  common  law. 

Section  four  of  the  statute  makes  it  "  unlawful  for  any 
common  carrier  subject  to  the  provisions  of  this  act  to 
charge  or  receive  any  greater  compensation  in  the  aggre- 
gate for  the  transportation  of  passengers  or  of  like  kinds 
of  property,  under  substantially  similar  circumstances 
and  conditions,  for  a  shorter  than  for  a  longer  distance 
over  the  same  line,  in  the  same  direction,  the  shorter 
being  included  within  the  longer  distance."     This  "  long 


FEDERAL  REGULATION  OF  RAILWAYS  371 

and  short  haul  clause  "  of  the  act  was  inserted  in  the 
law  because  of  the  prominence  in  this  country  of  the 
particular  form  of  discrimination  against  which  it  was 
directed.  The  large  volume  of  long-distance  traffic  com- 
peted for  by  rival  railroads  brought  about  such  reduc- 
tions in  the  charges  for  through  traffic  as  to  make  the 
local  rates  for  shorter  distances  much  higher  than  those 
on  competitive  business.  There  was  much  difference  of 
opinion  regarding  the  advisability  of  including  this  sec- 
tion in  the  law.  The  House  of  Representatives  favored 
its  inclusion  in  the  law  and  its  enforcement  under  all  cir- 
cumstances, but  the  Senate  foresaw  that  unless  the  pro- 
visions of  the  law  were  made  less  rigid,  carriers  might 
frequently  lose  their  traffic  at  competitive  points  and  be 
obliged  because  of  the  law  to  depend  even  more  largely 
for  their  income  upon  the  receipts  from  the  local  traffic. 
The  enforcement  of  a  long  and  short  haul  clause  under 
those  conditions  would  injure  both  the  local  shipper  and 
the  carrier.  For  this  reason  the  Interstate  Commerce 
Commission  established  by  the  act  was  given  power  to 
suspend  the  operation  of  section  four  for  certain  carriers 
in  special  cases  after  an  investigation  of  the  conditions  of 
competition.  The  commission  has  exercised  this  power 
in  several  instances. 

Section  five  prohibits  competing  railroads  from  pool- 
ing their  freights  or  their  aggregate  or  net  earnings.  No 
provision  of  the  law  has  been  more  debated  than  this 
antipooling  clause.  It  was  insisted  upon  by  the  House 
against  the  judgment  of  the  Senate.  The  House  believed 
that  enforced  competition  in  rate-making  by  rival  car- 
riers would  be  better  for  the  public  than  freedom  of 
interrailway  cooperation.  It  now  seems  clear  that  the 
prohibition  of  pooling  was  a  mistake,  and  that  the  na- 
tional regulation  of  railroads  would  have  been  more  suc- 
cessful had  pooling  been  permitted. 


372  AMERICAN  RAILWAY  TRANSPORTATION 

The  sixth  section  of  the  law  stipulates  that  all  rates 
and  fares  shall  be  printed  and  kept  open  to  public  inspec- 
tion. No  advance  shall  be  made  in  these  printed  charges, 
except  upon  a  ten  days'  notice,  nor  a  reduction  without 
giving  notice  three  days  prior  to  making  the  change.  All 
rates  and  fares  and  joint  tariffs  and  notices  of  rate 
changes  must  be  filed  with  the  commission. 

Section  seven  makes  it  unlawful  for  any  carrier  sub- 
ject to  the  act  to  interrupt  unnecessarily  the  continuous 
passage  of  freights  from  the  point  of  shipment  to  the 
place  of  destination.  The  law  was  not  to  be  made  to 
interfere  with  through  shipments  by  any  effort  to  change 
an  interstate  shipment  into  two  or  more  intrastate  ship- 
ments. 

Sections  eight,  nine,  and  ten  of  the  statute  provided 
penalties  for  violations  of  the  law.  Certain  violations  of 
the  law  were  made  punishable  by  fine,  others  by  fine  or 
imprisonment.  If  the  common  carrier  disobeying  the  law 
was  a  corporation,  only  the  officer  or  agent  who  violated 
the  law  was  punished.  This  was  a  defect  in  the  act.  The 
officers  who  disregard  the  law  usually  do  so  with  the  knowl- 
edge of  the  corporation  they  are  serving,  and  the  corpora- 
tion should  share  penalties  with  them.  This  defect  in  the 
law  of  1887  was  remedied  by  the  Elkins  law  of  February 
17,  1903,  by  which  the  corporation  as  well  as  its  agents  or 
officers  may  be  punished  for  violations  of  the  law.  The 
imprisonment  penalty  was  done  away  with,  and  fines 
ranging  from  $1,000  to  $20,000  were  provided  for.  The 
Elkins  law  also  stipulates  that  the  recipient  of  the  rebate 
or  discrimination  as  well  as  the  giver  shall  be  guilty  of 
a  misdemeanor.  Persons  claiming  damages  may  make 
complaint  to  the  Interstate  Commerce  Commission  or 
may  bring  suit  in  any  district  or  circuit  court  of  the 
United  States,  but  no  one  may  pursue  both  remedies. 

The  eleventh  section  established  an  Interstate  Com- 


FEDERAL  REGULATION  OP  RAILWAYS  373 

merce  Commission  of  five  members,  to  be  appointed  by 
the  President  of  the  United  States  with  the  consent  of  the 
Senate.  Not  more  than  three  commissioners  shall  be 
of  the  same  political  party.  The  commissioners  are  not 
allowed  to  own  railway  securities,  and  are  not  permitted 
to  "  engage  in  any  business,  vocation,  or  employment " 
while  in  office.  The  term  of  office  is  six  years,  and  by 
section  eighteen  of  the  law  the  salary  is  placed  at  $7,500 
a  year.  The  principal  office  of  the  commission  (section 
nineteen)  is  fixed  in  the  city  of  Washington. 

Sections  twelve  to  twenty-one  inclusive  outline  in  de- 
tail the  powers  and  duties  of  the  commission.  In  general, 
the  powers  which  Congress  undertook  to  bestow  on  the 
commission  were  those  possessed  by  the  Illinois  commis- 
sion over  State  traffic,  minus  the  power  of  preparing  and 
prescribing  schedules  of  maximum  rates.  It  was  to  be  a 
mandatory  commission  without  general  rate-making  func- 
tions. 

The  commission  is  given  full  power  to  make  investiga- 
tions, can  compel  carriers  to  produce  their  books  and 
papers,  and  to  give  testimony.  No  witness  may  refuse 
to  testify  even  though  his  testimony  may  tend  to  crim- 
inate himself,  "  but  such  evidence  or  testimony  shall  not 
be  used  against  such  person  on  the  trial  of  any  crim- 
inal proceeding.''  These  investigations  of  the  commis- 
sion may  be  begun  upon  the  complaint  of  some  party 
seeking  redress,  or  they  may  be  instituted  by  the  commis- 
sion upon  its  own  motion.  Whenever  the  commission 
makes  an  investigation  it  must  report  its  decision  in 
writing,  and  include  in  the  report  a  statement  of  the 
facts  upon  which  the  conclusion  is  based.  If  the  com- 
mission finds  that  the  law  is  being  violated  it  can  order 
the  violators  to  desist  from  their  illegal  acts,  and  may 
award  damages  to  be  paid  to  those  who  may  have  suffered 
by  those  illegal  doings. 


374  AMERICAN  RAILWAY  TRANSPORTATION 

The  orders  of  the  commission,  however,  do  not  have 
the  binding  force  of  a  decree  by  a  court.  The  carrier 
against  whom  the  commission's  order  is  directed  may 
ignore  the  order,  if  he  choose,  and  he  can  be  forced  to 
obey  only  by  equity  proceedings  in  the  courts.  When  an 
order  of  the  commission  is  disobeyed  the  commission  may 
appeal  to  a  United  States  circuit  court  to  enforce  the 
order.  In  the  trial  to  decide  whether  the  order  shall  be 
enforced,  the  commission's  findings  of  facts  must  be  ac- 
cepted by  the  court  as  "  prima  facie  evidence  as  to  each 
and  every  fact  found." 

It  was  supposed  by  the  framers  of  the  law  that  this 
clause  in  the  act  placed  in  the  hands  of  the  commission 
the  entire  work  of  investigating  and  deciding  upon  the 
facts,  and  that  the  court  would  exercise  only  its  power  of 
reviewing  any  questions  of  law  which  might  be  involved 
in  enforcing  the  commission's  orders.  Such,  however, 
has  not  been  the  practise  of  the  courts,  which  have  allowed 
the  defendants  to  introduce  evidence  into  the  trial  which 
had  not  been  submitted  to  and  passed  upon  by  the  com- 
mission. This  ruling  of  the  courts,  which  was  first  made 
in  1889,^  has  been  a  detriment  to  the  commission  as  an 
investigating  body.  The  parties  complained  against  have 
shown  a  tendency  to  regard  the  commission's  investiga- 
tion as  merely  a  preliminary  one,  and  instead  of  answer- 
ing the  charges  fully  before  the  commission,  have  reserved 
their  principal  testimony  for  presentation  at  the  trial 
before  the  court,  provided  the  proceeding  should  reach 
that  stage. 

It  is  not  to  be  inferred  from  the  foregoing  statement 
regarding  the  power  of  the  commission  to  institute  judi- 
cial proceedings  to  enforce  its  own  orders  that  the  com- 

1  By  Associate-Justice  Jackson  in  Kentucky  and  Indiana  Bridge 
Company  vs.  Louisville  and  Nashville  Railroad  Company,  decided  Jan- 
uary 7,  1889. 


FEDERAL  REGULATION   OP  RAILWAYS  3Y5 

mission  is  made  a  public  prosecutor  charged  with  the 
duty  of  bringing  before  the  courts  all  violations  of  the 
interstate  commerce  law.  The  offenses  made  criminal  by 
that  law  are  punishable  through  and  by  the  ordinary 
machinery  of  the  Federal  courts,  and  it  is  the  function 
of  the  courts  to  punish  crimes  arising  under  the  inter- 
state commerce  law  the  same  as  under  any  other  stat- 
ute. The  purpose  of  the  commission  is  to  aid  the  courts 
in  securing  an  observance  of  law. 

Each  carrier  subject  to  the  act  is  obliged  to  make  an 
annual  report  to  the  commission  containing  detailed  sta- 
tistical information  concerning  capitalization,  equipment, 
labor  staff,  business  done,  receipts,  operating  and  other 
expenses,  etc.,  and  also  "  a  complete  exhibit  of  the  finan- 
cial operations  of  the  carrier  each  year,  including  an 
annual  balance-sheet."  The  commission  is  also  given  the 
power  to  prescribe  a  uniform  system  of  keeping  accounts 
to  be  adopted  by  all  carriers,  subject  to  the  act,  but  as 
the  law  did  not  give  the  commission  the  power  to  inspect 
and  audit  the  accounts  of  railway  companies,  it  has  not 
attempted  to  prescribe  uniform  accounts;  however,  the 
annual  reports  required  by  the  Federal  commission  and 
those  of  the  State  commissions,  most  of  which  have 
adopted  the  form  of  report  sent  out  by  the  national  board, 
have  done  much  to  harmonize  the  systems  of  accounts  fol- 
lowed by  the  railroad  companies. 

The  operation  of  the  interstate  commerce  law  in  prac- 
tise has  been  different  from  what  its  framers  expected, 
because  the  courts  have  so  interpreted  the  main  pro- 
visions of  the  law  as  greatly  to  limit  its  scope.  The  act 
of  1887  was  initial  legislation  by  Congress  upon  a  prob- 
lem of  great  magnitude,  and  it  was  hardly  possible  for 
Congress  to  foresee  and  meet  all  the  economic  and  legal 
questions  involved.  The  enforcement  of  the  decisions  of 
the  commission  being  vested  in  the  courts,  the  commis- 


376  AMERICAN  RAILWAY  TRANSPORTATION 

sion's  interpretations  of  the  law  have  been  reviewed  by 
numerous  decisions  of  the  courts.  The  judges  of  the 
Federal  courts  have  in  fact  not  only  assisted  in  adminis- 
tering the  law  by  enforcing  or  setting  aside  the  rulings 
of  the  commission,  but  they  have  also  virtually  been  fel- 
low commissioners.  Suits  instituted  by  the  commission 
for  the  enforcement  of  its  decisions  have  been  turned  by 
the  courts  into  investigations  of  the  various  economic 
problems  of  railway  regulation — inquiries  which  Congress 
intended  to  entrust  solely  to  the  commission — and  the 
courts  have  rendered  decisions  based  quite  as  much  on 
their  own  as  on  the  commission's  interpretation  of  the 
facts.  It  was  the  intention  of  Congress  to  give  the  com- 
mission the  final  decision  as  to  the  economic  questions, 
and  to  confine  the  courts'  activities  to  questions  of  law; 
but  in  practise  it  has  been  found  that  the  legal  and  eco- 
nomic questions  could  not  be  kept  entirely  distinct,  be- 
cause in  many  cases  the  legal  points  involved  were  con- 
cerned with  the  reasonableness  of  rates,  questions  in 
equity  that  must  be  determined  by  considering  economic 
data. 

The  history  of  the  operation  of  the  interstate  com- 
merce law  centers  in  the  work  of  the  commission  as  an 
investigating  body,  and  as  a  board  for  the  equitable  ad- 
justment of  transportation  charges.  These  are  the  two 
main  purposes  for  which  the  law  was  passed  and  the  com- 
mission was  created. 

Although  the  law  gives  the  commission  extensive 
power  to  investigate,  and  although  the  findings  of  the 
commission  as  to  facts  are  to  be  taken  by  the  courts  as 
prima  facie  correct,  the  practise  of  the  courts  in  receiv- 
ing new  evidence  (not  previously  presented  to  the  com- 
mission), and  of  basing  their  decisions  on  this  new  evi- 
dence as  well  as  upon  the  commission's  finding  of  facts, 
has  lessened  the  efiiciency  of  the  commission.     Further- 


FEDERAL  REGULATION  OF  RAILWAYS  377 

more,  for  six  years — from  1890  to  1896 — the  power  of  the 
commission  was  seriously  restricted  by  a  refusal  on  the 
part  of  the  Federal  courts  to  compel  witnesses  to  give 
testimony  of  an  incriminating  nature.  The  law  as  en- 
acted in  1887  stipulated  that  no  witness  might  refuse  to 
testify  on  the  ground  that  his  testimony  might  tend  to 
criminate  him,  but  protected  the  witness  from  criminal 
prosecution  based  on  the  testimony  he  might  give  as  a 
witness.  The  courts  maintained  that  the  witness  must 
be  "  afforded  absolute  immunity  against  future  prosecu- 
tion "  (Counselman  vs,  Hitchcock,  142  U.  S.,  547),  in 
order  to  enjoy  the  protection  guaranteed  to  him  by  the 
fifth  amendment  of  the  Constitution,  which  contains 
the  clause  "  nor  shall  he  be  compelled,  in  any  criminal 
case,  to  be  a  witness  against  himself."  In  1893  Congress 
passed  a  law  which  gave  a  witness  protection  against  any 
prosecution,  civil  or  criminal,  on  account  of  any  testimony 
or  evidence  submitted.  This  law  did  not,  however,  imme- 
diately settle  the  question,  because  certain  inferior  Federal 
courts  still  maintained  that  the  witness  was  not  afforded 
the  protection  guaranteed  him  by  the  fifth  amendment. 
The  matter  was  finally  disposed  of  by  the  United  States 
Supreme  Court  in  the  Brown  case,  decided  March  23,  1896 
(Brown  vs.  Walker,  161  U.  S.,  591).  One  Theodore  F. 
Brown,  auditor  of  the  Alleghany  Valley  Railroad,  refused 
to  testify  before  the  Federal  Grand  Jury  of  the  Western 
District  of  Pennsylvania  regarding  rebates  alleged  to 
have  been  given  by  two  fellow  officers.  The  district 
judge  held  him  guilty  of  contempt  of  court,  and  when  the 
case  reached  the  Supreme  Court  on  appeal  it  was  decided 
that  the  full  immunity  from  prosecution  afforded  by  the 
interstate  commerce  law  as  amended  in  1893  was  all 
the  protection  a  witness  could  claim  under  the  Constitu- 
tion. Thus,  in  1896,  the  commission  definitely  obtained 
compulsory  power  of  investigation,  but  for  much  of  the 


378  AMERICAN  RAILWAY  TRANSPORTATION 

time  for  six  years  it  had  been  able  to  secure  only  sucb 
facts  as  witnesses  might  choose  voluntarily  to  give. 

The  interstate  commerce  law,  as  was  stated  above, 
forbids  unreasonably  high  and  unjustly  discriminating 
charges,  establishes  a  commission  to  decide  whether  the 
rates  and  fares  are  reasonable  and  just,  and  provides  that 
upon  the  complaint  of  any  shipper  or  passenger,  or  upon 
its  own  motion,  the  commission  may  investigate  specific 
charges  and  practises  of  the  carriers  to  determine  whether 
the  law  is  being  observed.  If  the  commission  finds  that 
carriers  are  charging  unreasonable  or  unjust  rates,  or 
are  engaging  in  practises  prohibited  by  law,  it  may  order 
the  carrier  to  desist  from  making  such  charges  or  en- 
gaging in  such  practises,  and  may  award  damages  to  the 
complaining  parties  who  have  suffered  losses.  For  ten 
years  it  was  the  practise  of  the  commission,  when  order- 
ing a  carrier  to  desist  from  charging  an  unreasonable 
rate,  to  name  the  rate  that  would  be  reasonable,  and  to 
order  the  carrier  to  put  in  force  a  rate  not  exceeding 
the  one  named  by  the  commission;  but  in  1897  the  Su- 
preme Court  in  the  Maximum  Rate  Case  (Interstate  Com- 
merce Commission  vs.  Cincinnati,  'New  Orleans  and  Texas 
Pacific  Railway  Company,  167  U.  S.,  479)  decided  "  that 
the  power  to  prescribe  rates  or  fix  any  tariff  is  not  among 
the  powers  granted  to  the  commission."  By  this  decision 
the  commission's  power  over  rates  was  limited  to  the 
negative  function  of  deciding  what  ought  not  to  have 
been  in  the  past. 

The  extent  of  the  power  which  the  commission  has 
or  ought  to  have  over  rates  is  chiefly  significant  from 
»the  standpoint  of  its  influence  upon  relative  rates  rather 
than  upon  absolute  charges.  It  is  in  the  adjustment  of 
rates  among  different  commodities,  and  what  is  still  more 
vital,  among  competing  localities  and  among  rival  carriers 
— that  is,  in  the  enforcement  of  sections  three  and  four  of 


FEDERAL  REGULATION  OF  RAILWAYS  379 

the  law — that  the  most  important  work  of  the  commission 
is  done. 

The  fourth  section,  which  contains  the  prohibition 
against  charging  more  for  the  shorter  than  for  a  longer 
haul  "  over  the  same  line "  when  the  shorter  haul  is 
included  within  the  longer  and  is  in  the  same  direction, 
makes  a  specific  application  of  the  general  principle 
enunciated  in  the  third  section — the  principle  that  no 
"  undue  or  unreasonable  preference  or  advantage  "  shall 
be  given  "  to  any  particular  person,  firm,  corporation,  or 
locality,  or  any  particular  description  of  traffic."  The 
importance  of  section  four,  however,  is  not  lessened  by 
the  fact  that  it  is  but  a  specific  application  of  section 
three.  Of  the  transportation  abuses  in  the  United  States 
due  to  competition  and  demanding  governmental  regula- 
tion, none  was  so  great  in  1887  as  that  of  local  discrimina- 
tions whereby  the  smaller  non-competitive  points  were 
made  to  pay  higher  rates  than  those  places  having  several 
rival  carriers.  These  local  points  were  not  very  often 
charged  rates  which  were  exorbitant  per  se.  It  was  in  the 
relation  between  local  and  competitive  rates  that  the  evil 
lay.  In  most  instances  this  abuse  involved  a  greater 
charge  for  a  shorter  than  for  a  longer  haul;  hence,  the 
fourth  section  was  placed  in  the  act  of  1887.  If  the  In- 
terstate Commerce  Commission  under  the  present  law,  or 
under  any  one  which  may  take  its  place,  is  to  accomplish 
an  effective  regulation  of  interstate,  commerce,  it  must  be 
done  by  giving  force  and  vitality  to  the  provisions  of  these 
two  sections  of  the  act  of  February  4,  1887. 

The  restriction  in  section  four  that  the  charge  for  the 
short  haul  shall  not  exceed  that  for  the  longer  one  ap- 
plies to  '^  the  transportation  of  passengers  or  of  like  kinds 
of  property,  under  substantially  similar  circumstances 
and  conditions/"  and  ^'  over  the  same  line/"  The  scope 
of  this  section  depends  upon  what  is  meant  by  the  same 


380  AMERICAN  RAILWAY  TRANSPORTATION 

line  and  by  similar  circumstances  and  conditions.  For  a 
while  it  was  held  by  some  courts  that  a  joint  line  com- 
posed of  two  or  more  roads  formed  an  individual  line 
distinct  from  those  formed  by  the  roads  which  together 
made  up  the  joint  line,  and,  accordingly,  that  shipments 
over  the  joint  line  and  over  the  component  roads  were 
not  shipments  "  over  the  same  line."  On  this  ground  it 
was  contended  that  the  through  or  joint-line  charges 
might  be  less  than  the  charges  for  a  shipment  over  one 
of  the  roads  forming  the  joint  line.^  Since  a  large  part 
of  interstate  railway  traffic  consists  of  joint-line  business, 
this  definition  of  the  word  line  threatened  to  rob  the 
fourth  section  of  much  of  its  validity;  but  in  1896  the 
Supreme  Court  in  the  Social  Circle  case  (Cincinnati,  New 
Orleans  and  Texas  Pacific  Eailway  vs.  Interstate  Com- 
merce Commission,  162  U.  S.,  184)  refused  to  accept  the 
narrow  technical  definition  of  the  word  line,  and  held  that 
the  charges  on  one  of  the  component  roads  must  not  ex- 
ceed the  joint-line  charge. 

The  interpretation  which  the  Supreme  Court  has  put 
upon  the  phrase  "  under  substantially  similar  circum- 
stances and  conditions  "  has  not  been  so  fortunate  for  the 
commission  and  for  its  work  of  railway  regulation.  One 
of  the  first  questions  which  the  commission  was  called 
upon  to  decide  in  the  administration  of  the  law  was  what 
constituted  such  dissimilarity  of  circumstances  and  con- 
ditions as  to  justify  a  railway  company  in  charging  more 
for  a  shorter  than  a  longer  haul.  The  reason  why  the 
railroads  made  such  discriminations  in  favor  of  the  longer 
haul  was  competition.  The  competition  of  the  railroad 
was  sometimes  with  rival  waterw^ays  not  subject  to  the 
Interstate  Commerce  Act,  and  sometimes  with  other  rail- 
ways regulated  by  that  law.  As  it  was  not  the  intention 
of  Congress  in  passing  the  act  of  1887  to  do  away  with 
competition  among  the  carriers  subject  to  that  law,  the 


FEDERAL   REGULATION   OF  RAILWAYS  381 

commission  ruled  that  the  competition  of  rival  railways, 
each  subject  to  the  regulation  provided  for  by  the  act 
of  Congress,  did  not  constitute  the  dissimilarity  of  cir- 
cumstances and  conditions  to  which  the  fourth  section 
of  the  law  referred.  The  competition  of  railways  with 
waterways — a  different  kind  of  a  transportation  agency, 
the  traffic  upon  which  was  not  subject  to  governmental 
regulation — was,  however,  held  to  create  circumstances 
and  conditions  which  were  dissimilar  and  which  might 
justify  a  less  charge  for  the  longer  distance.  Such  was 
uniformly  the  ruling  of  the  commission  until  November, 
1897,  when  the  Supreme  Court  in  the  Troy  case  (Inter- 
state Commerce  Commission  vs.  the  Alabama  Midland 
Eailway  Company  and  Others,  168  U.  S.,  144)  decided 
that  competition  between  rival  railways  may  create  dis- 
similarity of  circumstances  and  warrant  a  disregard  of  the 
fourth  section. 

This  ruling  of  the  Supreme  Court  deprives  the  fourth 
section  of  the  interstate  commerce  law  of  most  of  its 
vitality.  It  was  included  in  the  law  to  prevent  a  very 
prominent  kind  of  discrimination  that  was  caused  by 
competition.  The  law  did  not  remove  the  cause,  but 
sought  to  limit  the  operation  of  the  cause  by  declaring 
the  resulting  practises  illegal.  The  court  virtually  held 
in  the  Troy  case  that  the  result  is  justified  by  the  pres- 
ence of  the  cause. 

Goods  imported  into  this  country  are  frequently 
shipped  on  through  bills  of  lading  from  the  foreign  port 
to  the  interior  American  city  of  destination,  and  the  rail- 
road charge  from  the  American  port  to  the  point  of  des- 
tination is  a  part  of  a  through  rate.  This  through  rate 
fluctuates  with  the  frequent  variations  in  ocean  freight 
rates,  and  the  portion  received  by  the  American  railroad 
is  usually  much  less  than  the  rate  charged  for  carrying 
domestic  goods  between  the  seaboard  and  interior  cities. 


382  AMERICAN  RAILWAY  TRANSPORTATION 

The  importer  is  favored  more  than  the  domestic  shipper. 
Indeed,  the  through  rate  from  the  foreign  port  to  the 
interior  point  in  this  country  is  sometimes  less  than  the 
charge  from  the  American  seaboard  to  the  same  inland 
city.  In  the  Import  Rate  case  the  Interstate  Commerce 
Commission  took  the  ground  that  the  interstate  commerce 
law  did  not  apply  to  traffic  from  a  foreign  country  not 
adjacent  to  the  United  States,  that  the  commission  could 
not  properly  consider  the  circumstances  and  conditions 
of  competition  affecting  such  traffic,  and  that  a  higher 
railroad  charge  on  domestic  traffic  than  on  goods  im- 
ported was  an  unjust  discrimination.  This  decision  of  the 
commission,  however,  was  overruled  by  the  Supreme 
Court  March  30,  1896  (Texas  and  Pacific  Railway  Com- 
pany vs.  Interstate  Commerce  Commission,  162  U.  S., 
107).  By  so  deciding  the  Supreme  Court  opened  the 
door  to  many  discriminations. 

Although  the  ability  of  the  commission  to  accomplish 
its  main  purpose — the  adjustment  of  rates  and  fares — 
has  been  greatly  restricted  by  the  narrow  scope  given 
by  the  Supreme  Court  to  the  act  of  1887,  the  commission 
has  nevertheless  brought  about  several  important  results: 
(1)  Publicity  of  rates  has  been  secured,  and  the  public 
knowledge  of  railway  affairs  has  been  increased  by  the 
excellent  statistics  collected  and  published;  (2)  the  inter- 
state commerce  law  has  been  of  service  in  reducing  the 
number  of  freight  classifications  of  the  country;  (3)  by 
its  informal  as  well  as  its  formal  investigations  the  com- 
mission has  done  much  to  bring  about  a  better  adjustment 
of  railway  charges,  as  between  different  localities,  differ- 
ent commodities,  and  different  shippers;  (4)  the  work 
of  the  commission  has  been  of  great  educational  value. 
Its  reports  have  considered  in  a  clear  and  comprehensive 
manner  the  important  phases  of  the  railway  question  as 
they  have  presented  themselves  year  by  year,   and  its 


FEDERAL  REGULATION  OP  RAILWAYS  383 

decisions,  which  now  comprise  over  eight  volumes,  have 
developed  a  serviceable  and  valuable  administrative  code 
regarding  railway  regulation. 

The  experience  the  Interstate  Commerce  Commission 
has  had  under  the  act  of  1887  indicates  clearly  the  powers 
with  which  that  body  must  be  vested  in  order  to  perform 
adequately  the  work  of  regulating  railway  transportation. 
These  powers  may  be  summarized  under  four  heads: 

1.  The  commission  should  possess  the  power,  under 
such  restrictions  as  will  safeguard  the  business  of  the 
carriers,  to  inspect  and  audit  the  accounts  of  interstate 
railways.  The  railroads  should  be  required  to  keep  their 
accounts  according  to  a  uniform  system  acceptable  to  the 
Government.  By  giving  the  commission  these  powers, 
the  detection  of  discriminations  would  be  made  easier 
and  the  value  of  the  statistics  of  railways  would  be 
somewhat  increased. 

2.  The  commission  should  be  the  sole  and  final  judge 
as  to  the  facts  in  controversies  between  the  carriers  and 
the  public.  Whenever  the  courts  in  reviewing  the  de- 
cisions of  the  commission  think  a  further  investigation  into 
the  facts  to  be  necessary,  the  courts  should  be  required  to 
refer  the  case  to  the  commission  for  reconsideration. 

3.  In  order  to  perform  its  chief  task — that  of  adjust- 
ing railway  charges — the  commission  must  have  the  power 
to  decide  what  is  a  reasonable  and  lawful  rate.  After 
the  commission  has  determined  by  means  of  a  full  and 
careful  investigation  instituted  upon  the  complaint  of 
some  interested  party  that  a  particular  rate  being  charged 
by  a  carrier  is  unreasonable,  the  commission  should  have 
the  power  to  name  the  rate  that  under  the  existing  cir- 
cumstances is  reasonable  and  lawful. 

4.  The  decisions  and  orders  of  the  commission  as  to 
rates  and  other  matters  should  be  binding  upon  the  car- 
rier, unless  the  enforcement  of  the  order  is  suspended  by 


384:  AMERICAN  RAILWAY  TRANSPORTATION 

an  injunction  of  a  Federal  Court  acting  upon  the  appeal 
of  the  carrier.  At  present  the  carrier  may  ignore  an 
order  of  the  commission,  and  the  commission  must  take 
the  carrier  into  court.  The  carrier  should  be  required 
either  to  obey  the  commission  or  to  take  it  into  court. 
In  order  to  avoid  delays  in  securing  the  enforcement  of 
the  commission's  orders  and  in  securing  a  final  adjudica- 
tion of  the  points  of  law  arising  in  reviewing  the  orders 
of  the  commission,  the  carrier's  appeal  for  relief  from 
the  orders  of  the  commission  should  be  made  to  the 
United  States  Circuit  Court  of  Appeals,  the  court  next 
below  the  Supreme  Court,  which  should,  and  naturally 
would,  be  the  final  judge  of  questions  of  law. 

A  grant  of  these  powers  would  not  confer  upon  the 
commission  the  general  authority  to  prescribe  rates  and 
fares,  nor  would  such  a  grant  of  authority  be  wise.  The 
changes  proposed  in  the  present  law  would  simply  enable 
the  commission,  after  a  full  investigation  of  all  the  facts, 
to  correct  such  particular  charges  as  might  be  found  un- 
reasonable or  unfair,  and  to  correct  them  promptly  with- 
out the  delays  which  have  in  the  past  so  seriously  impaired 
the  efficiency  of  the  commission  as  a  body  for  the  regula- 
tion of  railway  transportation. 

The  ideal  sought  in  the  government  regulation  of 
railways  is  to  establish  and  maintain  equitable  relations 
between  the  carriers  and  the  people  whom  they  serve, 
and  the  fact  must  be  kept  in  mind  that  this  ideal  can  not 
be  attained  solely  by  statutory  prohibitions.  Laws  neces- 
sarily deal  mainly  with  effects  rather  than  with  causes. 
Unreasonable  discriminations  have  been  made  illegal,  but 
the  violators  of  the  law  are  not  condemned  at  the  bar 
of  public  opinion.  In  America  only  those  laws  can  be 
enforced  that  give  expression  to  public  opinion,  and  in 
order  to  make  unjust  discriminations  impossible  in  the 
railway  business,  the  public  must  come  to  feel  that  it  is 


FEDERAL  REGULATION  OF  RAILWAYS  385 

as  mucli  a  crime  for  public  carriers,  chartered  by  the 
state  to  perform  its  function  of  providing  transporta- 
tion, to  deny  to  one  individual  or  community  advantages 
to  which  they  are  as  justly  entitled  as  are  other  persons 
and  communities  receiving  the  advantages  as  it  would  be 
for  the  Government  to  favor  some  citizens  and  sections 
and  discriminate  against  others. 

REFERENCES    FOR    FURTHER    READING 

Report  of  the  Windom  Committee,  1874,  Senate  Report  307,  Forty- 
third  Congress,  First  Session. 

Report  of  the  Cullom  Committee,  1886,  Senate  Report  46,  Forty-ninth 
Congress,  First  Session. 

Annual  Reports  of  the  Interstate  Commerce  Commission.  [The  first 
and  eleventh  contain  particularly  good  discussions  of  the  prob- 
lems of  Federal  regulation.] 

Report  of  the  Industrial  Commission,  vol.  xix,  pp.  419-444. 

Meyer,  B.  H.  The  Interstate  Commerce  Commission,  Political  Sci- 
ence Quarterly,  vol.  xvii,  September,  1902. 

Dabney,  W.  D.     The  Public  Regulation  of  Railways.     1889. 

Dos  Passos,  J.  R.  The  Interstate  Commerce  Act :  An  Analysis  of  its 
Provisions.     1887. 

Seligman,  E.  R.  a.  Railway  Tariffs  and  the  Interstate  Commerce 
Law,  Political  Science  Quarterly,  vol.  ii,  1887. 

Hendrick,  F.     Railway  Control  by  Commissions,  ch.  viii. 

Compendium  of  Transportation  Theories,  edited  by  C.  C.  McCain. 
[A  collection  of  thirty-four  papers  by  different  authors.  Many 
papers  are  valuable.] 

KiRKMAN,  M.  M.     Railway  Rates  and  Government  Control.      1892. 

Stickney,  a.  State  Control  of  Trade  and  Commerce  by  National  or 
State  Authority.     1897. 

Year-Book  of  Railway  Literature,  vol.  i,  1897.  [A  series  of  papers 
compiled  by  H.  P.  Robinson  and  published  by  the  Railway  Age, 
Chicago.  The  volume  contains,  among  other  papers,  the  opinions 
of  the  Supreme  Court  and  of  the  dissenting  justices  in  the  Trans- 
Missouri  case.  United  States  vs.  The  Trans-Missouri  Freight  Asso- 
ciation, 169  U.  S.,  290;  also  the  opinion  of  the  Supreme  Court  in 
the  Maximum  Rate  case,  Interstate  Commerce  Commission  m.  Cin- 
cinnati, New  Orleans  and  Texas  Pacific  Railway,  167  U.  S.,  479.] 


CHAPTER   XXYII 

THE    COURTS    AND    RAILWAY    REGULATION 

The  function  of  regulating  railways  is  shared  jointly 
by  all  three  branches  of  the  Government — the  executive, 
legislative,  and  judicial.  The  scope  and  limits  of  the 
legislative  powers  of  railway  regulation  have  been  fixed 
by  the  courts,  and  the  courts  have  so  modified  both  State 
and  national  legislation  as  virtually  to  have  shared  with 
the  law-making  branch  of  the  State  legislatures  and  with 
Congress  the  exercise  of  legislative  functions.  Much  law 
is  accurately  styled  court-made,  and  this  is  particularly 
true  of  the  laws  regulating  railways. 

This  influence  of  the  courts  upon  the  laws  regulating 
railways  is  strikingly  illustrated  by  the  decision  of  the  Su- 
preme Court  in  United  States  vs.  Trans-Missouri  Freight 
Association  (166  U.  S.,  290),  in  which  the  court  decided 
that  the  antitrust  law  of  July  2,  1890,  applied  to  railway 
companies,  and  made  illegal  the  agreements  of  competing 
railway  companies  for  the  maintenance  of  reasonable  rates. 
This  law  declared  illegal  "  every  contract,  combination  in 
the  form  of  trust  or  otherwise,  or  conspiracy,  in  restraint  of 
trade  or  commerce  among  the  several  States,  or  with  for- 
eign nations,"  but  was  not  generally  supposed  to  apply  to 
railway  companies  nor  to  rate  agreements  between  such 
carriers.  Indeed,  this  view  of  the  law  was  entertained 
by  the  United  States  Circuit  Court  and  the  Circuit  Court 
of  Appeals  in  the  Trans-Missouri  Freight  Association 
case;  but  the  Supreme  Court  by  a  close  decision — Rve 


THE  COURTS  AND  RAILWAY  REGULATION  387 

judges  approving,  four  dissenting — decided  that  the  law 
of  1890  did  apply  to  railroads,  and  made  unlawful  all 
agreements  between  rival  roads  for  the  maintenance  of 
reasonable  rates.  The  interpretation  thus  put  upon  the 
"  antitrust "  law  by  the  Supreme  Court  compelled  the 
reorganization  of  railway  traffic  associations,  modified  the 
methods  of  railway  management,  and  gave  a  new  phase 
to  the  governmental  regulation  of  railroads. 

The  division  of  the  functions  of  our  Government  among 
its  three  branches — the  legislative,  executive,  and  judicial 
— while  sharply  drawn,  is  not  complete.  The  Legislature 
exercises  executive  functions,-  the  executive  participates 
in  legislation,  and  the  judiciary  by  interpreting  and  ap- 
plying the  laws  validates  or  invalidates  and  restricts  or 
widens  the  scope  of  legislation.  The  courts  also  cooper- 
ate with  the  executive  in  the  enforcement  of  laws.  The 
powers  of  the  judiciary  as  regards  transportation  and  all 
other  subjects  are  derived  from  three  sources:  the  or- 
ganic law  of  the  constitutions,  the  statutory  laws,  and 
the  common  law.  The  national  and  State  constitutions 
confer  upon  the  judiciary  the  general  power  of  inter- 
preting and  applying  the  law,  and  enumerate  the  sub- 
jects over  which  the  courts  shall  have  jurisdiction.  The 
powers  over  railways  conferred  upon  the  courts  by  State 
and  Federal  statutes  are  given  in  the  two  preceding  chap- 
ters. The  courts  are  required  to  assist  the  commissions, 
State  and  Federal,  by  compelling  recalcitrant  witnesses 
to  appear  and  testify  before  those  bodies;  the  State's 
attorneys  are  the  officers  charged  with  the  duty  of  prose- 
cuting the  violators  of  laws  for  the  regulation  of  rail- 
ways, and  for  prosecuting  those  who  disobey  or  ignore 
the  orders  of  the  commissions;  the  Federal  statute  makes 
the  validity  of  the  national  commission's  orders  depend- 
ent upon  the  decrees  of  the  courts,  and  by  doing  this  it 
has  made  the  courts  what  Congress  had  no  intention  of 


AMERICAN   RAILWAY  TRANSPORTATION 

making  them — joint  investigators  with  the  commission  of 
the  facts  concerning  transportation  questions  arising  under 
the  law. 

The  power  of  railway  regulation  which  the  judiciary 
has  in  its  equity  powers  derived  from  the  common  law 
is  far  greater  than  its  statutory  powers,  and  of  much 
more  significance  to  the  public  welfare.  The  authority 
which  the  courts  have  been  given  by  statutes  is  definite 
and  fixed,  but  the  scope  of  equity  jurisdiction,  except 
where  determined  at  certain  points  by  law,  may  be  ex- 
tended at  the  will  of  the  judiciary.  Indeed,  the  rapid 
extension  of  the  equity  powers  of  the  courts  is  the  most 
characteristic  fact  of  the  past  century's  legal  history. 

It  has  been  in  the  exercise  of  their  equity  powers 
over  three  subjects  that  the  courts  have  exerted  their 
strongest  influence  upon  governmental  regulation  of  rail- 
ways. Those  three  subjects  are  (1)  the  fixing  of  rates 
and  fares  by  State  authority;  (2)  the  intervention  of 
the  Government  in  railway  labor  disputes;  and  (3)  rail- 
way receiverships  or  the  management  of  insolvent  rail- 
roads by  the  courts. 

A  court  has  no  authority  to  make  railway  rates,  but  it 
has  the  power  to  unmake  them  if  they  are  unreasonable 
or  unjust.  When  the  rates  and  fares  are  fixed  by  a  State 
government  for  a  railroad  company,  the  reasonableness  of 
any  charge  involves  a  question  of  equity  of  which  the 
courts -are  the  final  judges.  Indeed,  in  the  United  States 
the  reasonableness  of  any  State-named  tariff,  whether 
for. interstate  business  or  for  local  traffic  carried  on  by  a 
company  whose  activities  are  confined  entirely  within  a 
single  State,  may  be  determined  by  the  Federal  courts. 

The  fixing  of  rates  by  governmental  authority  is  a  legis- 
lative function.  When  the  American  States  began  to  exer- 
cise this  function  the  railroad  companies  sought  to  prove 
that  the  railway  companies  alone,  and  not  the  State  legis- 


THE  COURTS  AND  RAILWAY  REGULATION         389 

latures,  had  the  power  to  fix  charges,  and  that  if  a  shipper 
or  passenger  considered  himself  to  have  been  overcharged 
his  recourse  must  be  to  the  courts  and  not  to  the  Legisla- 
ture. The  Supreme  Court  of  the  United  States  settled 
this  question  in  favor  of  the  State  legislatures  in  the 
"  granger  decisions  "  in  1877,  and  even  went  so  far  as  to 
say  that  if  the  rate  "  has  been  improperly  fixed,  the  Legis- 
lature, not  the  courts,  must  be  appealed  to  for  the 
change.''  It  is  not  probable,  however,  that  the  Supreme 
Court  intended  by  this  language  to  renounce  its  equity 
power  of  passing  on  the  reasonableness  of  railway  rates. 
Indeed,  in  1885,  in  upholding  a  Mississippi  law,  the 
court  was  careful  to  state  that  "  the  power  [of  a  Legisla- 
ture] to  regulate  is  not  the  power  to  destroy,"  and  five 
years  later  the  statute  of  Minnesota  giving  the  Kailroad 
and  Warehouse  Commission  of  that  State  the  power  to 
prescribe  rates  and  making  the  commission's  decision  final 
as  to  what  were  reasonable  charges  was  held  by  the 
Supreme  Court  to  be  unconstitutional,  because  "  the  rea- 
sonableness of  a  rate  of  charge  for  transportation  by  a 
railroad  company  ...  is  eminently  a  question  for  judi- 
cial investigation." 

Another  important  assertion  of  its  equity  powers  over 
railway  charges  was  made  by  the  Supreme  Court  in  1898. 
A  Nebraska  statute,  passed  in  1893,  fixing  "  reasonable 
maximum  rates  to  be  charged  for  the  transportation  of 
freights,"  gave  the  railroad  companies  of  the  State  the 
right  to  bring  action  in  the  Supreme  Court  of  the  State 
to  test  the  reasonableness  of  the  rates  fixed  by  the  Legis- 
lature. If  the  court  considered  the  rates  to  be  unrea- 
sonably low  and  unjust,  it  could  order  the  State  Board  of 
Transportation  to  raise  the  rates.  The  constitutionality 
of  the  law  was  soon  tested.  The  railway'  companies  took 
the  ground  that  the  rates  fixed  by  the  l^ebraska  statute 
were  unreasonably  low,  and  certain  of  their  stockholders 


390  AMERICAN  RAILWAY  TRANSPORTATION 

not  citizens  of  Nebraska  sued  in  the  United  States  Cir- 
cuit Court  for  an  injunction  prohibiting  the  enforcement 
of  the  rates  fixed  by  the  State  law,  and  such  an  injunc- 
tion was  granted.  It  was  claimed  by  the  attorneys  for 
the  State  of  Nebraska  that  the  Federal  Court  had  no 
equity  jurisdiction  in  the  suit,  because  the  statute  had 
given  the  railroad  companies  an  adequate  remedy  at  law 
by  granting  them  the  right  to  appeal  to  the  Supreme. 
/  Court  of  the  State  for  an  order  on  the  Board  of  Trans- 
portation to  correct  any  unreasonable  rate.  The  Federal 
courts,  however,  did  not  accept  that  view,  and  the  Su- 
preme Court  held  that  "one  who  is  entitled  to  sue  in 
the  Federal  Circuit  Court  may  invoke  its  jurisdiction  in 
equity  whenever  the  established  principles  and  rules  of 
equity  permit  such  a  suit  in  that  court;  and  he  can  not 
be  deprived  of  that  right  by  reason  of  his  being  allowed  to 
sue  at  law  in  a  State  court  on  the  same  cause  of  action." 
(Smyth  vs.  Ames,  169  U.  S.,  466). 

By  this  decision,  rendered  March  Y,  1898,  the  Federal 
judiciary  has  included  within  its  equity  jurisdiction  the 
prerogative  of  passing  upon  the  reasonableness  of  any 
and  every  railway  rate  that  is  established  by  State  legisla- 
tures in  the  United  States.  That  the  possession  of  this 
power  by  the  Federal  courts  gives  them  an  important  place 
as  a  governmental  regulator  of  railways  is  well  illustrated 
by  this  decision  in  the  Nebraska  Freight-Rate  case.  The 
Supreme  Court  confirmed  the  injunction  issued  by  the 
Circuit  Court,  and  the  Nebraska  law  of  1893  was  declared 
unconstitutional,  because  the  court  believed  that  the 
legislature  of  that  State  had  reduced  the  rates  so  much 
as  to  violate  the  fourteenth  amendment  to  the  United  States 
Constitution,  which  declares  that  no  "  State  shall  deprive 
any  person  of  life,  liberty,  or  property  without  due  process 
of  law.'' 

The  courts  have  now  fully  established  their  right  to 


THE  COURTS  AND   RAILWAY   REGULATION         391 

validate  or  invalidate  the  rates  prescribed  by  the  State 
legislatures  or  by  Congress.  Every  rate  fixed  by  law  is 
now  recognized  to  be  subject  to  review  by  the  Federal 
courts.  To  what  extent  and  in  what  manner,  it  may  now 
be  asked,  are  the  rates  and  fares  fixed  by  the  railroad 
companies  subject  to  the  authority  of  the  courts  ? 

The  rates  fixed  by  the  companies  on  intrastate  traffic 
are  reviewable  by  the  State  courts;  interstate  rates  by  the 
Federal  courts.  If  any  carrier  charges  an  extortionate  rate 
or  one  that  unjustly  discriminates,  the  aggrieved  shipper  or 
passenger  may  sue  the  carrier  for  the  recovery  of  damages. 
Indeed,  this  right  of  prosecution  was  possessed  under  the 
common  law  before  the  passage  of  laws  prohibiting  unrea- 
sonable railway  charges.  Theoretically  this  privilege  gives 
each  individual  protection  against  losses  from  excessive  or 
unjust  charges  for  railroad  transportation;  but  in  practise 
this  protection  is  very  inadequate,  because  most  persons 
will  prefer  to  bear  a  slight  injustice  rather  than  to  under- 
go the  trouble,  expense,  and  business  risks  that  a  law- 
suit may  involve.  Furthermore,  the  business  losses  result^ 
ing  from  an  unreasonable  rate  are  seldom  covered  by  the 
excessive  amount  of  the  charge;  the  chief  losses  are  those 
caused  by  the  injury  done  to  the  complainant's  business. 
A  discriminating  rate  may  seriously  cripple  or  ruin  a 
shipper  by  diverting  his  business  to  a  more  fortunate 
competitor  whose  railroad  charges  are  lower.  One  rea- 
son for  the  establishment  of  the  State  railroad  commis- 
sions and  the  Interstate  Commerce  Commission  was  to 
provide  a  public  agency  whereby  the  aggrieved  shipper 
or  passenger  might  secure  legal  redress  without  expense. 

Sometimes  the  courts  have  prevented  the  railroads  from 
'  advancing  rates.  An  instance  of  this  occurred  in  E'ovem- 
ber,  1898,  when  the  United  States  Circuit  Court  at  Denver, 
Col.,  issued  a  temporary  injunction  restraining  the  South- 
ern Pacific  and  other  railroads  from  putting  into  effect  a 


392  AMERICAN  RAILWAY  TRANSPORTATION 

proposed  advance  of  33  per  cent  in  the  rates  on  iron  and 
steel  from  Colorado  points  to  the  Pacific  coast.  The  appli- 
cation for  this  injunction  was  made  by  the  Colorado  Fuel 
and  Iron  Company,  whose  products  were  in  part  marketed 
on  the  Pacific  coast.  The  reasoning  of  the  court  in  this 
case  states  very  clearly  the  inadequacy  of  legal  processes 
for  the  recovery  of  damages  resulting  from  unreasonable 
rates.  Among  other  things  the  court  said :  "  If  the  rate 
shall  be  raised  as  proposed  and  complainant  shall  be  ex- 
cluded from  the  market,  as  stated  in  the  bill  will  be 
the  case,  in  case  this  notice  is  carried  out,  no  compensa- 
tion which  can  be  obtained  in  damages  would  be  ade- 
quate. It  would  be  impracticable  to  show  in  an  action 
at  law  what  the  losses  resulting  from  such  a  procedure 
might  be,  and  so  it  would  seem  that  equity  can  afford  the 
only  adequate  relief  under  such  circumstances." 

The  courts  have  used  their  powers  of  injunction  not 
only  to  prevent  the  railroads  from  charging  excessive  rates, 
but  also  to  enjoin  them  from  cutting  rates.  In  preventing 
advances  the  courts  have  acted  in  the  interests  of  shippers ; 
in  stopping  rate  reductions  action  was  taken  for  the  relief 
of  the  owners  of  the  railway  securities  and  of  the  ship- 
pers whose  business  might  suffer.  There  is  at  least  one 
instance  of  a  rate  war  having  been  checked  by  injunc- 
tions of  the  courts.  In  July,  1896,  a  controversy  arose 
between  the  Seaboard  Air  Line  and  the  Southern  Rail- 
way Company,  two  corporations  controlling  a  large  part 
of  the  traffic  of  the  Southeastern  section  of  the  United 
States.  The  Seaboard  Air  Line  began  the  rate-cutting 
by  taking  one-third  off  its  rates  on  traffic  to  those  points 
south  of  Baltimore  where  it  had  to  meet  the  competition 
of  its  rival.  The  Southern  Railway  Company  met  this 
cut,  whereupon  the  Seaboard  extended  the  cut  to  its 
traffic  from  Boston,  Providence,  New  York,  and  Phila- 
delphia to  Southern  cities,   and  announced  that  if  the 


THE  COURTS  AND  RAILWAY  REGULATION         393 

Southern  Railway  should  meet  the  cut  a  further  reduction 
would  be  made  in  the  Seaboard's  charges.  The  reply  of 
the  Southern  Railway  to  this  challenge  was  the  announce- 
ment of  a  cut  of  80  per  cent,  to  go  into  effect  ten  days 
later,  August  1,  1898. 

At  this  stage  of  the  war  the  United  States  District 
Court  of  l!^orth  Carolina,  Judge  Simonton,  was  asked  to 
enjoin  the  contending  roads  from  carrying  out  the  rate 
reductions  that  had  been  announced.  The  prayer  for 
this  injunction  was  made  by  the  receiver  of  the  Port 
Royal  and  Augusta  Railway,  an  insolvent  company  form- 
ing one  of  the  connections  of  the  Seaboard  Air  Line. 
The  prayer  was  based  on  the  plea  that  the  threatened 
rate  war  would  result  in  "  the  certain  destruction  of  the 
railroad  property  in  the  hands  of  the  receiver."  The 
court  appealed  to  granted  a  temporary  injunction  until 
the  15th  of  August,  but  on  that  date  the  injunction  was 
not  made  permanent,  because  some  of  the  companies 
affected  by  the  injunction  were  outside  of  the  jurisdic- 
tion of  the  District  Court  of  North  Carolina. 

With  the  removal  of  Judge  Simonton's  injunction 
the  rate  war  broke  out  afresh,  but  the  Federal  courts 
were  again  successfully  appealed  to.  This  time  an  asso- 
ciation of  merchants,  the  Wholesale  Grocers'  Association 
of  Augusta,  appealed  to  Judge  Speer  of  the  United  States 
District  Court  of  Southern  Georgia,  sitting  in  Augusta, 
for  an  injunction  against  the  railroads,  on  the  ground 
that  the  low  rates  to  Atlanta  constituted  an  unjust  dis- 
crimination against  Augusta,  Macon,  and  other  cities,  and 
violated  section  three  of  the  interstate  commerce  law. 
The  last  section  of  the  law,  section  twenty-two,  gives  the 
district  and  circuit  courts  power  to  issue  such  an  injunc- 
tion as  was  asked  for  by  the  Augusta  merchants,  and  on 
September  10th  Judge  Speer  granted  a  temporary  injunc- 
tion, enjoining  the  railroad  companies  to  restore  the  rate 


394  AMERICAN  RAILWAY  TRANSPORTATION 

that  had  been  in  force  September  5th.  The  date  for  the 
hearing  was  fixed  for  the  24th.  The  Southern  Eailway 
Company  restored  its  rates  according  to  the  order  of  the 
court,  and  the  Seaboard  did  the  same  with  its  charges  to 
some  places.  The  Seaboard,  however,  had  no  line  enter- 
ing Atlanta,  and  there  was  some  doubt  as  to  the  extent 
of  the  jurisdiction  of  the  court  that  had  issued  the  injunc- 
tion; consequently,  it  did  not  restore  its  rates  to  all  points. 
This  difficulty  as  regards  jurisdiction  was  settled  by  the 
issue  of  an  injunction  by  Judge  Hughes  of  the  United 
States  Circuit  Court  for  the  Eastern  District  of  Virginia, 
sitting  at  Richmond. 

This  injunction  of  the  Circuit  Court  is  the  most  sig- 
nificant of  the  three  that  have  been  mentioned,  because 
it  was  issued  to  protect  the  owners  of  railway  bonds.  The 
comJDlainants  were  the  Baltimore  Trust  and  Guarantee 
Company  and  other  financial  institutions  holding  railroad 
bonds,  who  sued  for  an  injunction  on  the  ground  that 
the  rate  war  was  destroying  their  property,  and  that  they 
had  no  means  of  prevetiting  that  destruction  by  an  action 
at  law. 

Before  the  1st  of  October  all  rates  were  restored 
and  the  war  was  brought  to  an  end.  The  courts  did 
actually  terminate  a  rate  warj  and  did  so  by  enjoining 
the  railroads  against  charging  rates  that  were  unjustly 
low.  One  injunction  was  issued  to  prohibit  illegal  dis- 
crimination; the  other  two  were  to  prevent  the  destruc- 
tion of  property.  Inasmuch  as  the  questions  at  issue  in 
these  cases  did  not  reach  the  Supreme  Court  for  adjudi- 
cation, it  was  not  finally  settled  that  the  Federal  courts 
actually  possess  the  power  to  declare  rates  unreasona- 
bly low  as  well  as  unreasonably  high,  but  that  the  courts 
do  have  this  power  is  rendered  very  probable  by  the  is- 
sues of  the  above  injunctions  by  three  diiferent  Federal 
courts.  . 


THE  COURTS  AND  RAILWAY  REGULATION         395 

The  latest  use  of  the  equity  power  of  the  courts  to  con- 
trol railway  charges  has  been  to  enjoin  railroad  companies 
from  secretly  cutting  rates.  It  was  found  by  the  Interstate 
Commerce  Commission  at  the  close  of  1901  that  the  rates 
on  grain,  grain  products,  and  packing-house  products 
were  being  secretly  cut,  and  that  the  published  rates  were 
not  being  observed.  The  giving  of  secret  rates  was  a 
criminal  offense,  and  the  United  States  Department  of 
Justice  was  informed  by  the  commission  that  the  inter- 
state commerce  law  was  being  violated,  but  in  this  case, 
as  in  former  instances,  the  Government  was  unable  to 
enforce  the  criminal  provisions  of  that  law,  because  the 
persons  who  have  knowledge  of  secret  cuttings  of  rates 
are  loath  to  give  to  the  State  evidence  that  may  cause 
those  who  give  the  special  rates  (often  their  own  busi- 
ness acquaintances)  to  be  sent  to  prison.  Idealizing  that 
the  reliance  upon  criminal  prosecutions  for  the  preven- 
tion of  rate  discriminations  would  not  secure  the  ob- 
servance of  the  law,  the  Interstate  Commerce  Commis- 
sion applied  to  the  Federal  Circuit  Court  at  Kansas  City 
and  Chicago  in  March,  1902,  to  enjoin  the  leading  rail- 
way companies  of  the  central  West  to  observe  their  pub- 
lished schedules  of  rates.  Temporary  injunctions  were 
granted  as  requested;  indeed,  most  of  the  railroad  com- 
panies concerned  were  said  to  have  welcomed  the  injunc- 
tions, because  the  restraining  orders  of  the  courts  would 
enable  the  companies  to  enforce  their  published  rates. 
Railroads  do  not  usually  cut  rates  because  they  wish  to, 
but  because  they  think  they  must  in  order  to  secure  or 
hold  traffic.  Arguments  as  to  making  the  temporary 
injunctions  permanent  were  not  heard  in  Chicago  until 
December,  1902.  The  injunctions  were  allowed  to  stand, 
and  the  Elkins  law  of  February  17,  1903,  has  now 
given  the  courts  definite  power  to  issue  such  writs  of  in- 
junction. 


396  AMERICAN  RAILWAY  TRANSPORTATION 

Injunctions  in  Labor  Disputes 

In  connection  with  the  disputes  between  labor  and  cap- 
ital, the  equity  powers  of  the  courts  have  frequently  been 
employed  to  protect  the  interests  of  one  or  the  other  of 
the  contending  parties  or  of  the  general  public.  By  their 
intervention  in  railway  labor  controversies  the  Federal 
courts  have  exercised  a  regulative  authority  of  consider- 
able importance  over  the  railroad  service. 

As  the  law  in  regard  to  striking  has  been  interpreted 
by  the  American  courts,  railroad  employees  and  other 
workmen  have  a  right  either  singly  or  in  a  body  to  quit 
their  employment  at  any  time,  provided  they  do  not  vio- 
late a  contract  in  doing  so,  and  provided  they  quit  peace- 
ably without  violence  and  without  concerted  actions  in- 
tended to  injure  their  employer  or  his  business.  It  is 
permissible  for  laborers  to  refrain  from  working,  and  to 
advise  and  encourage  others,  by  peaceable  argument  and 
persuasion,  to  quit  their  employment.  A  strike  may  be 
legal,  but  in  many,  if  not  most  cases,  the  strikers  are 
led  to  resort  to  illegal  acts,  because  the  success  of  the 
strike  depends  upon  their  preventing  their  employer  from 
securing  other  men  to  fill  the  places  of  the  strikers.  To 
accomplish  this,  intimidation  and  violence  are  frequently 
necessary. 

In  the  case  of  railroad  employees  several  exceptions 
have  been  made  by  State  and  Federal  statutes  to  this 
general  law  of  strikes.  In  order  to  prevent  the  loss  of 
life  and  the  destruction  of  property,  laws  have  been  passed 
making  it  a  penal  offense  for  a  locomotive  engineer,  con- 
ductor, brakeman,  baggage-master,  or  other  railroad  em- 
ployee to  abandon  his  engine,  car,  or  train  when  it  is 
en  route  to  its  regular  destination,  or  to  injure  or  dis- 
able any  engine  or  car  so  that  it  will  not  be  fit  for  imme- 
diate use.     The  courts  have  also  held  it  to  be  unlawful 


THE  COURTS  AND  RAILWAY  REGULATION         397 

for  an  engineer  on  one  road  to  aid  a  strike  against  some 
other  road  by  refusing  to  haul  the  cars  of  such  connect- 
ing company. 

In  numerous  instances  railroad  companies  and  other 
employers  have  appealed  successfully  to  the  courts  for  the 
issue  of  mandatory  writs  enjoining  strikers  from  destroy- 
ing the  property  of  the  companies,  from  intimidating 
men  to  prevent  their  taking  the  places  vacated  by  the 
strikers,  and  from  doing  such  other  acts  as  will  render  it 
impossible  for  the  railroad  company  to  perform  its  serv- 
ices to  the  public.  During  the  past  decade  the  courts 
have  come  to  make  these  injunctions  very  comprehensive, 
and  have  prevented  persons  not  only  from  destroying 
property  and  using  threats,  intimidation,  or  force  to  in- 
duce men  to  quit  the  service  of  a  railroad  or  not  to  engage 
in  its  employment,  but  also  "  from  in  any  manner  inter- 
fering with "  the  movement  of  the  trains.  Moreover, 
and,  what  is  more  important,  these  injunctions,  instead  of 
being  directed  against  only  those  persons  named  in  the 
bills,  have  included  "  all  persons  combining  and  conspir- 
ing with  them,  and  all  other  persons  whomsoever/'  Be- 
cause of  their  wide  scope,  these  writs  have  been  popu- 
larly called  blanket  injunctions,  and  their  purpose  and 
effect  have  been  to  substitute  for  the  punishments  pro- 
vided by  the  statutes  against  crimes  the  surer  and  speedier 
remedy  of  the  mandatory  processes  of  the  courts  sitting 
in  the  exercise  of  their  equity  powers. 

The  courts  may  in  some  instances  order  railway  em- 
ployees— while  they  remain  in  the  service  of  their  em- 
ployer— to  perform  their  regular  services.  Such  an  order 
was  issued  in  1893  by  a  Federal  court  in  connection  with 
a  strike  on  the  Toledo,  Ann  Arbor  and  Northern  Michi- 
gan Railroad.  This  railroad  connects  with  the  Lake 
Shore  road  at  Toledo,  and  the  engineers  on  the  Lake 
Shore  were  ordered  by  their  brotherhood  not  to  haul 


398  AMERICAN  RAILWAY  TRANSPORTATION 

the  cars  received  from  the  Ann  Arbor  line.  The  Ann 
Arbor  company,  acting  in  accordance  with  the  provisions 
of  sections  ten  and  twenty-two  of  the  interstate  com- 
merce law,  appealed  to  the  courts  for  a  mandamus  to 
compel  the  Lake  Shore  to  receive  and  haul  the  freight 
offered.  The  court  granted  the  writ,  and  enjoined  both 
the  officers  and  employees  of  the  roads  connecting  with 
the  Ann  Arbor  to  receive  and  forward  its  freight.  The 
court  admitted  the  right  of  the  engineers  to  leave  the 
employment  of  the  roads  connecting  with  the  Ann  Arbor, 
but  declared  that  while  the  engineers  continued  in  their 
employment  a  refusal  to  handle  the  freight  received  from 
the  Ann  Arbor  company  would  be  a  contempt  of  court. 
This  ruling  of  the  lower  court  was  upheld  by  the  Su- 
preme Court.  In  refusing  to  haul  the  freight  received 
from  the  Ann  Arbor  company  the  engineers  of  the  Lake 
Shore  and  other  roads  were  obeying  a  by-law  of  the 
Brotherhood  of  Locomotive  Engineers  requiring  its  mem- 
bers to  refuse  to  handle  the  traffic  from  roads  where  an 
authorized  strike  was  in  progress.  The  Federal  courts 
held  this  rule  to  be  a  violation  of  the  antitrust  law  of 
July  2,  1890,  and  the  brotherhood  was  ordered  to  aban- 
don the  rule,  which  was  done. 

In  1894  an  order  was  made  by  Judge  Jenkins  of  the 
United  States  Circuit  Court,  sitting  in  Milwaukee,  en- 
joining the  employees  of  the  Northern  Pacific  (which 
road  was  then  insolvent  and  was  being  managed  by  receiv- 
ers appointed  by  Judge  Jenkins)  "from  combining  and 
conspiring  to  quit,  with  or  without  notice,  the  service  of 
said  receivers."  The  purpose  of  the  order  was  to  prevent 
a  threatened  strike.  This  order  was,  however,  overruled 
by  the  Circuit  Court  of  Appeals,  as  was  also  an  injunc- 
tion, issued  the  same  year,  enjoining  the  employees  of  the 
Union  Pacific  Railway  (then  insolvent  and  in  charge  of 
receivers)  from  striking  when  the  receivers  should  put 


THE  COURTS  AND  RAILWAY  REGULATION         399 

into  force  an  announced  reduction  of  wages.  There  was 
much  popular  opposition  to  these  injunctions,  and  it  is 
doubtless  fortunate  for  the  public  that  the  lower  court 
was  not  upheld  in  its  endeavors  to  prevent  men  from 
striking  or  to  compel  them  to  work. 

A  conspiracy  in  restraint  of  trade  or  commerce  among 
the  several  States  is  made  illegal  by  the  antitrust  law 
of  1890,  and  the  obstruction  of  the  mails  is  forbidden 
by  Section  3995  of  the  United  States  Revised  Statutes. 
The  enforcement  of  these  and  similar  laws  is  ordinarily 
accomplished  by  indicting  and  punishing  those  persons 
who  may  break  the  laws;  but  in  extraordinary  times, 
when  a  disregard  of  law  is  causing  or  threatening  to  cause 
loss  of  life,  destruction  of  property,  or  serious  public 
inconvenience,  the  courts  may  temporarily  exercise  their 
mandatory  power  of  injunction  to  preserve  order  and 
insure  the  observance  of  the  laws.  This  power  was  ex- 
ercised by  the  Federal  courts  in  a  forcible  and  effective 
manner  during  the  strike  inaugurated  at  Chicago  by  the 
American  Railway  Union  in  July,  1894,  the  so-called 
"  Debs  Strike.'^ 

On  the  11th  of  May,  1894,  the  employees  of  the  Pull- 
man Palace-Car  Company,  at  the  town  of  Pullman,  near 
Chicago,  .went  on  a  strike.  These  Pullman  employees  were 
members  of  a  large  organization  of  railway  men,  the  Amer- 
ican Railway  Union,  whose  president  was  Eugene  Y.  Debs. 
On  the  26th  of  June  the  Railway  Union  inaugurated  a 
boycott  against  the  Pullman  Company  by  voting  that  no 
member  of  the  union  should  handle  Pullman  cars.  ■  The 
purpose  of  this  "  sympathetic  strike  "  was  to  tie  up  the 
railway  business  of  the  country,  and  thus  to  force  the 
Pullman  Company  either  to  grant  the  demands  of  its 
striking  employees  or  to  agree  to  an  arbitration  of  the 
grievances.  The  boycott  had  the  effect  of  stopping  the 
movement  of  passenger-trains,  and  consequently  the  mails. 


400        am:prican  railway  transportation 

into  and  out  of  Chicago,  and  at  other  places  in  the  United 
States.  At  Chicago,  violence,  disorder,  the  destruction 
of  property,  and  the  loss  of  life  followed  soon  after  the 
strike  began,  and  on  July  2d  the  United  States  Circuit 
Court,  Chief  Justice  Fuller  presiding,  issued  an  order 
enjoining  Debs  and  the  other  officers  of  the  American 
Railway  Union,  "  and  all  other  persons  combining  and 
conspiring  with  them,"  and  "  all  other  persons  whomso- 
ever," from  in  any  way  interfering  with  the  movement 
of  trains  or  the  transportation  of  the  mails  over  the  23 
railroads  that  enter  Chicago.  This  injunction  was  disre- 
garded, and  in  accordance  with  President  Cleveland's  ' 
orders  nearly  2,000  of  the  United  States  regular  troops 
were  sent  iilto  Chicago  between  the  3d  and  10th  of  July 
to  assist  the  courts  in  enforcing  their  orders.  The  United 
States  Marshal  also  employed  about  5,000  deputy  mar- 
shals. There  were  in  addition  to  these  the  police  force 
of  the  city  of  Chicago  and  the  4,000  Illinois  State  mili- 
tia ordered  on  duty  between  July  6th  and  11th.  Presi- 
dent Cleveland  ordered  the  Federal  troops  to  Chicago 
without  being  requested  to  do  so  by  the  Governor  of 
Illinois,  the  troops  being  sent  "to  protect  Federal  prop- 
erty, to  prevent  obstruction  in  the  carrying  of  the  mails, 
to  prevent  interference  with  the  interstate  commerce, 
and  to  enforce  the  decrees  and  mandates  of  the  Federal 
courts."  The  strike  was  broken  by  the  exercise  of  mili- 
tary force  and  by  the  arrest  and  imprisonment  of  the 
leaders  of  the  strikers,  particularly  the  officers  of  the 
American  Railway  Union.  These  officers  were  attached 
and  imprisoned  on  the  13th  of  July  for  contempt  of 
court  in  disobeying  the  injunction  issued  July  2d.  This 
action  of  the  Federal  Circuit  Court  was  sustained  by 
the  Supreme  Court,  to  which  appeal  was  made  by  Mr. 
Debs  and  the  other  officers  of  the  American  Railway 
Union. 


THE  COURTS  AND  RAILWAY  REGULATION         401 

The  courts  have  made  such  large  use  of  their  power 
of  injunction  to  intervene  in  controversies  which  railway 
companies  may  have  with  each  other  and  with  their  em- 
ployees that  much  has  been  said  in  favor  of  legislation 
narrowing  the  scope  of  equity  jurisdiction  in  these  mat- 
ters. The  tendency  at  the  present  time,  however,  seems 
rather  to  be  against  such  laws,  and  in  favor  of  leaving 
the  courts  free  to  take  such  action  in  cases  of  emergency 
as  in  their  judgment  seems  best.  The  Federal  judges 
are  men  who  represent  the  conservative  judgment  of  the 
thoughtful  classes  of  society.  As  the  conservative  opinion 
of  society  as  a  whole  changes  and  advances,  there  will  be 
a  corresponding  change  in  the  nature  and  scope  of  the 
equity  powers  exercised  by  the  courts. 

Railway  Receiverships 

When  a  railroad  company  becomes  insolvent — i.  e., 
when  it  can  not  pay  the  interest  on  its  debt  or  meet  its 
other  financial  obligations — the  creditors  of  the  road  may 
ask  a  court  to  take  possession  of  the  property.  If  the 
court  grants  the  request  of  the  creditors,  the  property 
is  taken  from  the  management  of  the  directors  and  offi- 
cers of  the  company  and  put  in  charge  of  an  officer  of  the 
court  called  the  receiver.  If  the  company  is  not  hope- 
lessly insolvent  the  road  will  be  operated  by  the  receiver, 
who  will  cooperate  with  the  creditors  and  the  owners  of 
the  road  in  reorganizing  the  company  and  placing  it  on 
a  solvent  financial  basis.  If,  however,  the  liabilities  of 
the  company  are  found  to  be  so  great  as  to  make  impos- 
sible a  return  to  solvency  by  means  of  reorganization,  the 
court  will  instruct  the  receiver  to  sell  the  property  for 
the  benefit  of  the  creditors;  but  whether  the  property  is 
sold  or  not  every  effort  will  be  made  to  keep  the  rail- 
road in  operation,  because  the  value  of  the  property  in- 
vested in  a  railroad  depends  almost  entirely  upon  what 
27 


402  AMERICAN  RAILWAY  TRANSPORTATION 

it  can  earn  as  a  railroad.     It  can  not  be  used  for  other 
purposes. 

The  foreclosure  suit  which  the  creditors  institute 
against  an  insolvent  railroad  is  seldom  instituted  to  com- 
pel a  sale  of  the  property;  indeed,  the  owners  of  the  junior 
liens  and  the  stock  of  the  company  are  usually  willing 
to  make  considerable  present  sacrifice  to  prevent  the  dis- 
ruption of  the  property,  because  a  reorganization  of  the 
company  makes  it  possible  for  the  subordinate  liens  and 
the  stock  to  become  valuable  in  the  future.  In  order 
to  secure  the  funds  temporarily  required  to  operate  the 
road  and  to  rehabilitate  the  property,  the  receiver  bor- 
rows money  by  the  sale  of  certificates  which  constitute 
a  first  claim  on  the  property,  outranking  even  the  first- 
mortgage  bonds.  While  the  receiver  is  improving  the 
property  with  the  capital  thus  obtained,  and  is  increasing 
the  earning  capacity  of  the  road,  committees  representing 
the  financial  interests  concerned  are  at  work  on  a  plan  of 
reorganization.  This  plan  usually  involves  an  assessment 
on  the  stock,  and  sometimes  on  the  holders  of  the  junior 
mortgages,  and  frequently  requires  the  exchange  of  some  of 
the  bonds  for  stock  and  the  displacement  of  some  of  the  old 
bonds  with  a  new  issue  bearing  a  lower  rate  of  interest. 
The  purpose  of  the  changes  is  to  reduce  the  capital 
charges  so  that  the  earnings  of  the  road  will  be  able  to 
meet  the  fixed  charges.  "When  the  court  having  control 
of  the  insolvent  road  is  satisfied  that  a  plan  of  reorgani- 
zation has  been  worked  out  that  will  insure  the  solvency 
of  the  company  he  accepts  the  plan  and  restores  the 
property  to  the  management  of  the  stockholders.  If  the 
receivership  has  been  successfully  managed,  the  court  has 
not  only  avoided  selling  the  property  under  the  hammer, 
but  has  put  the  road  in  a  better  condition  for  handling 
trafiic.  The  total  capitalization  of  the  company  may 
have  been  reduced,  but  that  does  not  always  occur;  it 


THE  COURTS  AND  RAILWAY  REGULATION         403 

has  sometimes  been  found  possible  to  reduce  the  interest 
and  other  fixed  charges  while  actually  increasing  not  only 
the  stocks  but  the  indebtedness  of  the  company. 

In  prosperous  times  most  railroad  companies  are 
solvent,  and  the  courts  have  charge  of  but  a  short  mile- 
age; but  in  times  of  severe  business  depression  the  courts 
have  operated  a  surprisingly  large  part  of  the  railway 
systems  of  the  country.  On  the  30th  of  June,  1901, 
only  45  roads  in  the  United  States,  with  a  total  mileage 
of  2,497  miles  of  line,  Avere  being  operated  by  receivers; 
but  on  June  30,  1894,  there  were  in  the  hands  of  receiv- 
ers 192  companies,  with  a  capitalization  comprising  near- 
ly one-fourth  of  the  railway  capital  of  the  entire  country. 
During  the  eighteen  months  ending  July  1,  1894,  43,000 
miles  of  railroads — 24  per  cent  of  the  total  mileage  of 
the  country — were  taken  charge  of  by  the  courts.  In 
some  instances  the  duration  of  the  receivership  was  only 
for  a  few  months,  but  in  other  cases  the  roads  were  under 
the  control  of  the  courts  for  several  years.  From  Novem- 
ber, 1893,  until  November,  1896,  the  number  of  miles 
of  railroad  in  charge  of  receivers  was  at  no  time  less  than 
20,000  miles,  the  maximum  number  of  miles  at  any  one 
time  being  36,619.  It  was  not  until  the  spring  of  1899 
that  the  total  mileage  in  the  hands  of  receivers  became  less 
than  10,000.  The  experience  of  the  railroads  in  regard  to 
receiverships  during  the  business  depressions  of  1873  to 
1880,  and  from  1885  to  1887,  was  similar  to  their  expe- 
rience during  the  panic  beginning  in  1893. 

The  large  number  of  railroad  receiverships  in  the  Uni- 
ted States  has  been  the  result  of  several  causes,  of  which 
the  first  and  most  potent  has  been  overcapitalization.  In 
many  instances  the  actual  investment  for  the  construction 
and  equipment  of  the  railroad  represented  but  little  more 
than  the  amount  of  first-mortgage  bonds.  The  junior  liens 
were  frequently  sold  at  a  great  discount,  and  the  stocks 


404  AMERICAN  RAILWAY  TRANSPORTATION 

were  distributed  as  a  bonus  to  the  purchasers  of  the  bonds. 
The  securities  other  than  the  first-mortgage  bonds  were  used 
as  the  inducement  by  which  men  were  influenced  to  invest 
in  the  enterprise.  The  value  of  the  stock  and  to  a  large  ex- 
tent of  the  junior  liens  depended  on  the  growth  of  the  traf- 
fic of  the  railroad.  Many  roads  were  highly  prosperous 
almost  from  the  start,  and  rapidly  gave  actual  value  to 
the  fictitious  capital.  Other  companies  were  not  so  fortu- 
nate. They  found  that  their  system  of  roads  had  been 
extended  more  rapidly  than  the  growth  of  the  country 
demanded,  or  that  the  completion  of  their  lines  was  fol- 
lowed by  a  business  depression  which  cut  down  their  an- 
ticipated traffic  and  increased  the  difficulty  of  financing 
their  enterprise,  or  they  found  that  some  other  company 
followed  them  closely  with  a  new  and  rival  line.  During 
the  years  from  1868  to  1873,  and  from  1880  to  1885, 
railways  were  constructed  with  great  rapidity,  particularly 
in  the  central  and  far  Western  sections  of  the  country, 
and  the  tendency  toward  overcapitalization  and  specula- 
tion was  excessive.  Many  companies  found  they  had 
overestimated  the  future  increase  in  their  traffic,  that 
competition  became  keener  and  rates  declined  faster  than 
had  been  expected.  The  result  was  insolvency  and  the 
temporary  management  of  the  roads  by  the  courts. 

Some  railroads  were  built  almost  entirely  for  specu- 
lative purposes  by  persons  whose  object  was  to  profit 
from  the  construction  of  the  road.  Such  speculators  built 
the  line  entirely  with  borrowed  capital,  made  large  sums 
from  the  construction  contracts,  and  then  permitted  the 
insolvent  road  to  pass  into  the  hands  of '  the  security 
holders. 

^N'ow  that  the  country  has  been  generally  supplied 
with  railways  and  the  great  systems  are  being  grouped 
by  means  of  communities  of  interests  into  a  limited 
number   of  managements,    some    of   the   causes    of   rail- 


THE  COUflTS  AND  RAILWAY   REGULATION         405 

way  insolvency  have  become  inoperative.  *  Railways  are 
not  now  likely  to  be  projected  ahead  of  business  needs; 
nor  is  it  now  easy  (although  it  is  usually  possible)  for 
a  new  company  to  enter  a  field  already  occupied.  Con- 
solidation and  community  of  interest  in  ownership  and 
management  have  done  much  to  restrain  direct  com- 
petition in  rate-making.  There  is  also  noticeable  an  in- 
crease of  conservatism  in  railway  financiering  as  the  cor- 
porations become  older  and  larger.  The  opportunity  of 
the  irresponsible  speculator  has  been  greatly  narrowed, 
although  he  has  not  been  driven  entirely  from  the  field. 
The  tendency  toward  overcapitalization,  moreover,  is  not 
so  general  as  it  was  twenty-five  years  since,  but  it  is  still 
practised  to  a  large  degree.  Indeed,  the  next  business 
depression  will  doubtless  find  a  number  of  railroad  com- 
panies with  greater  capital  obligations  than  can  be  met. 
It  is  not  probable  that  railway  insolvencies  and  receiver- 
ships are  altogether  a  matter  of  history. 

It  has  been  urged  against  the  present  system  of  rail- 
road receiverships  that  they  impose  on  the  courts  du- 
ties with  which  the  judges  are  ordinarily  not  prepared  to 
deal;  that  they  confer  on  the  judges  too  great  power 
and  too  much  patronage;  that  our  present  methods  of 
reorganization  of  an  insolvent  company  do  not  cure  the 
evil  of  stock  watering;  and  that  reorganizations  under 
the  present  plan  are  unduly  expensive.  Much,  moreover, 
is  made  of  the  fact  that  the  proceedings  for  receiverships 
are  frequently  instituted  by  the  directors  of  the  compa- 
nies, or  those  friendly  to  them,  for  the  purpose  of  pro- 
tecting themselves  against  the  real  creditors  of  the  com- 
pany. It  frequently  occurs  that  when  the  directors  or 
officers  of  a  road  see  that  the  company  is  threatened  with 
insolvency  they  will  apply  to  a  court  for  the  appoint- 
ment of  a  receiver.  In  making  the  application  the  offi- 
cials usually  suggest  one  of  their  own  number,  often  the 


406  AMERICAN  RAILWAY  TRANSPORTATION 

president  of  the  company,  as  the  person  they  would  like 
the  court  to  select  for  the  receiver,  and  as  the  judge 
knows  he  must  secure  the  services  of  some  one  who  is 
familiar  with  the  affairs  of  the  road,  he  is  usually  dis- 
posed to  appoint  the  person  recommended  by  the  appli- 
cants. The  term  "  friendly  receiverships  "  has  been  ap- 
plied to  such  a  proceeding,  and  the  practise  is  open  to 
the  objection  of  continuing  in  virtual  control  of  the  road 
the  very  person  or  persons  under  whose  management  the 
company  has  become  insolvent.  While  the  company  is  in 
the  hands  of  the  receivers  it  does  not  have  to  pay  interest 
on  the  bonds,  and  money  for  the  improvement  of  the  road 
can  be  borrowed  by  the  sale  of  certificates.  As  Prof. 
Henry  C.  Adams  has  said,  "  the  law  of  receivership  was 
originally  intended  for  the  protection  of  the  creditor; 
but  it  has  been  used  ...  as  a  means  of  carrying  the 
management  of  large  properties  through  a  period  of  gen- 
eral commercial  depression  without  fear  of  interference 
from  creditors  or  from  interested  parties  ambitious  of 
control." 

To  prevent  the  objectionable  results  of  friendly  re- 
ceiverships it  has  been  suggested  that  a  law  should  be 
enacted  stipulating  that  the  first  receiver  appointed  by 
the  court  should  be  a  temporary  appointee,  and  that  the 
permanent  receiver  should  not  be  selected  until  after  the 
creditors  of  the  company  have  had  an  opportunity  to  be 
heard.  Some  persons  have  advocated  the  establishment 
of  a  special  Federal  court  for  the  management  and  reor- 
ganization of  insolvent  railroads.  The  judges  in  a  special 
court  would  become  experts,  and  as  there  would  be  but 
one  court  there  would  be  no  conflict  of  jurisdiction  be- 
tween different  courts.  It  would  be  to  the  advantage  of 
the  existing  courts  to  relieve  them  of  the  management 
of  railroads.  In  times  of  prosperity  the  need  for  a  special 
court  is  not  especially  urgent,  although  previous  to  1903 


THE  COURTS  AND  RAILWAY  REGULATION         407 

there  had  been  no  time  for  thirty  years  when  there  were  less 
than  2,000  miles  of  line  in  charge  of  the  courts.  For  half 
of  the  time  during  that  period  over  10,000  miles  have  been 
managed  by  the  courts,  and  for  several  years  there  have 
been  over  20,000  miles  so  controlled.  The  mileage  of 
insolvent  railroads  during  the  next  period  of  business 
depression  will  hardly  be  as  great  as  the  mileage  was 
from  1893  to  1895,  but  the  mileage  will  be  several  times 
that  of  the  present  prosperous  times. 

REFERENCES    FOR    FURTHER    READING 

On  the  power  of  the  Federal  courts  over  railway  rates  consult: 

1.  The  "granger"  decisions,  1877,  particularly  Munn  vs.  Illinois,  94 

U.  S.,  and  Peik  vs.  Chicago  and  Northwestern  Railway,  94  U.  S. 
3.  The  commission  cases,  1886,  Stone  et  al.  vs.  Farmers*  Loan  and 

Trust  Company,  116  U.  S.,  307. 

3.  The  Minnesota  case,  Chicago,  Milwaukee,  and  St.  Paul  Railway 

Company  vs.  Minnesota,  1890,  134  U.  S.,  418. 

4.  The  Nebraska  Maximum  Freight  Rate  case,  1898,  Smyth  vs.  Ames, 

169  U.  S.,  466. 

On  the  employment  of  injunctions  in  labor  disputes  read : 

Dunbar,  W.  H.  Government  by  Injunction,  American  Economic 
Association,  Economic  Studies,  vol.  iii,  1898. 

Stimson,  J.  F.     Labor  in  its  Relation  to  Law.     1895. 

On  railway  receiverships  consult : 

Swain,  H.  H.  Economic  Aspects  of  Railroad  Receiverships,  Amer- 
ican Economic  Association,  Economic  Studies,  vol.  iii,  pp.  53-161, 
1898.  [A  concise  discussion  of  the  nature  and  functions  of  re- 
ceivers, the  history  and  statistics,  the  effects,  and  the  future  of 
receiverships.  The  appendix  contains  a  critical  bibliography  of 
sources  of  information.] 


CHAPTEK   XXYIII 

RAILWAY    TAXATION 

During  the  earlier  decades  of  railroad  construction  the 
need  of  transportation  facilities  was  so  urgent  that  the 
tendency  of  the  public  was  to  aid  rather  than  to  tax  rail- 
way companies.  The  state  assisted  the  companies  by 
making  the  tax  rate  especially  light  or  by  exempting  them 
from  all  tax  levies  for  a  period  of  years.  This  practise 
of  exempting  railroad  property  from  taxation  was  very 
general,  though  never  universal,  before  the  civil  war. 
Since  then  public  sentiment  and  legislative  practise  have 
favored  the  taxation  of  railroads  as  heavily  as  other  forms 
of  investment,  although  there  are  even  now  a  few  survi- 
vals of  the  former  policy  of  exemption  and  of  the  policy 
of  favoring  particular  companies  with  special  and  excep- 
tionally light  taxes.  It  will  probably  not  be  many  years 
before  all  the  railroad  systems  in  each  State  will  be  sub- 
ject to  a  general  State  tax  law.  It  will  be  a  long  time, 
however,  before  the  laws  of  the  several  States  will  be  uni- 
form or  even  approximately  alike. 

The  first  taxes  imposed  on  railroad  companies  were  the 
local  general  property  taxes  such  as  were  paid  by  individ- 
uals. With  the  exception  of  Pennsylvania,  where  the  traf- 
fic was  subjected  to  a  State  tax,  the  practise  in  all  the  States 
was  for  the  local  tax  ofiicial  to  assess  the  real  and  personal 
property  of  the  railroads  in  the  same  manner  as  private 
persons  were  assessed.  The  plan  of  taxation  was  a  natural 
one  for  the  States  to  adopt,  and  was  partially  justified  by 
406 


RAILWAY  TAXATION  *«'^^  409 

the  shortness  and  local  character  of  the  early  railroad  sys- 
tems; but  the  local  method  of  assessment  and  collection 
made  the  tax  burdens  of  the  companies  different  in  each 
locality,  and  gave  the  companies  an  incentive  as  well  as 
an  opportunity  to  evade  taxes.  The  plan  of  local  valua- 
tion levies  took  no  account  of  the  relative  abilities  of  the 
various  companies  to  pay  taxes;  and  as  the  railroad  sys- 
tems grew  from  local  lines  to  those  hundreds  of  miles  in 
length  and  interstate  in  character,  the  necessity  for  a 
different  method  of  taxation  became  apparent. 

In  1850  the  application  of  the  local  general  property 
taxes  to  railroads  was  the  general  rule  in  the  United  States, 
but  in  1880  that  method  was  followed  in  less  than  one- 
fourth  of  the  States.  The  property  basis  for  taxing  rail- 
roads was  seldom  abandoned,  but  in  many  States  instead 
of  allowing  local  assessors  to  make  the  valuation.  State 
officials  were  charged  with  that  duty,  and  in  most  in- 
stances the  law  prescribed  the  general  rules  to  be  followed 
by  the  State  authorities  in  determining  the  cash  value 
of  the  railroads.  Those  rules  were  usually  complex  and 
were  seldom  the  same  in  any  two  States.  In  some  States 
the  capitalization  of  the  railroads  as  well  as  (or  instead  of) 
their  cash  valuation  was  made  the  basis  of  taxation.  An- 
other basis  of  taxing  favored  by  several  States  was  the 
gross  receipts  of  the  companies.  All  three  of  these  modi- 
fications in  the  original  system  of  a  general  property  tax 
locally  assessed  had  been  introduced  into  various  States 
before  1880,  and  since  then  each  plan  has  been  consider- 
ably developed  and  improved.  It  will  be  best  to  describe 
each  of  the  three  plans  in  turn. 

With  but  few  exceptions  the  property  tax  is  levied  on  a 
valuation  fixed  by  a  board  of  State  oflftcers,  to  whom  the 
railroad  companies  are  obliged  to  make  annual  reports  cov- 
ering all  the  details  required  by  the  State  board.  Theoret- 
ically the  duty  of  the  board  is  to  ascertain  the  full  cash 


410  AMERICAN  RAILWAY  TRANSPORTATION 

value  of  the  property  owned  by  each  company,  and  to  make 
that  value  the  basis  of  the  levy.  In  practise,  however,  the 
State  board  can  seldom  determine  the  actual  value  with 
strict  accuracy.  This  is  shown  by  the  fact  that  the 
assessed  valuations  of  different  roads  frequently  bear  very 
different  ratios  to  the  net  earnings  of  the  roads.  The 
valuations,  moreover,  are  not  apt  to  be  changed  often 
enough  to  make  them  correspond  even  approximately 
with  the  variations  in  the  profitableness  of  the  railway 
business.  The  property  tax  may  be  a  heavy  burden  one 
year  when  times  are  bad,  and  be  a  relatively  light  load 
to  carry  the  next  year,  when  times  are  prosperous.  In 
spite  of  its  defects,  however,  the  property  tax  will  prob- 
ably be  maintained,  because  of  the  popular  feeling  that 
the  property  of  railroad  companies  should  be  taxed  in 
the  same  way  that  the  property  of  individuals  is  taxed. 
The  property  tax,  moreover,  has  the  advantages  of  being 
capable  of  yielding  the  State  a  large  revenue  and  of 
being  constant  in  its  returns  from  year  to  year. 

In  some  States  the  valuations  are  fixed  and  the  taxes 
are  assessed  by  the  State  authorities,  but  more  frequently 
the  local  governments  compute  and  collect  the  taxes 
within  their  respective  jurisdictions.  The  State  board 
fixes  the  valuation  of  the  entire  railroad  property  within 
the  State,  and  then  apportions  the  total  value  among  the 
counties.  When  the  taxes  are  assessed  by  the  State  ofii- 
cials  the  proceeds,  in  part  at  least,  of  the  taxes  are  divided 
among  the  local  districts.  In  most  States  the  local  govern- 
ments still  have  the  power  of  taxing  railroad  property 
situated  outside  of  the  company's  right  of  way.  It  would 
simplify  the  tax  administration  for  the  States  to  take  over 
all  power  of  taxing  railroad  companies,  but  to  do  so  would 
deprive  the  local  governments  of  a  needed  source  of  rev- 
enue, unless  a  considerable  portion  of  the  amount  col- 
lected by  the  State  were  distributed  amon^  the  counties 


RAILWAY  TAXATION  411 

and  towns.  This  plan  of  State  collection  and  local  appor- 
tionment has  been  adopted  by  a  few  States,  but  the  plan 
is  not  an  altogether  safe  one,  because  the  collection  and 
distribution  of  large  sums  by  the  State  governments  may 
lead  to  waste  and  misappropriation  of  funds. 

Connecticut  and  Pennsylvania  tax  the  stocks  and  bonds 
of  railway  companies,  and  in  Massachusetts  and  'New  York 
the  stocks  are  taxed.  The  par  value  of  the  stack  is  assessed 
in  New  York  if  the  dividends  equal  or  exceed  6  per  cent. 
If  the  dividends  declared  are  less  than  6  per  cent  the 
"  actual  "  value  of  the  stock  is  assessed.  In  Pennsylvania 
the  actual  value  is  assessed,  but  in  other  States  the  basis 
taken  is  the  market  value.  These  taxes  have  the  merits  of 
being  inexpensive  to  collect  and  of  yielding  a  nearly  con- 
stant amount  of  revenue.  They  may  also  be  easily  and 
accurately  assessed,  and  those  who  pay  them  may  know  in 
advance  just  what  their  taxes  are  to  be.  There  is  some 
doubt  as  to  the  constitutional  authority  of  a  State  to  tax 
the  railway  bonds  owned  by  non-residents  of  the  State. 
In  1872  the  Supreme  Court  of  the  United  States  held 
that  bonds  so  owned  could  not  be  taxed,  but  in  1900  the 
Supreme  Court  upheld  an  Oregon  statute  imposing  a  tax 
on  real-estate  mortgages  held  by  non-residents.  This  re- 
cent decision  probably  overrules  the  one  of  1872. 

In  several  of  the  States  a  tax  is  imposed  on  the  gross  re- 
ceipts of  the  railroad  companies.  In  Wisconsin,  Maine,  and 
Maryland  this  is  the  only  tax  laid  upon  the  railroads.  The 
same  was  true  of  Michigan  before  the  tax  laws  were  changed 
in  1901.  In  the  other  States  that  make  earnings  a  basis  of 
assessment  this  tax  is  but  a  part  of  the  railroad  levies.  In 
Wisconsin  the  railroad  companies  are  grouped  into  four 
classes,  according  to  their  gross  annual  earnings  per  mile  of 
line,  and  the  tax  rate  is  made  higher  for  the  groups  having 
the  larger  earnings.  Until  recently  the  Michigan  and  Wis- 
consin laws  were  popular,  but  latterly  they  have  not  been 


412  AMERICAN  RAILWAY  TRANSPORTATION 

so.  Michigan  has  repealed  her  law  and  put  in  force  a 
system  of  taxing  the  value  of  the  property  of  railroads 
as  assessed  by  a  State  board,  and  for  some  years  there  has 
been  an  agitation  in  Wisconsin  for  a  change.  The  prin- 
cipal reason  for  this  dissatisfaction  was  that  the  States 
having  the  property  tax  system  were  deriving  a  larger 
revenue  from  the  railroads.  It  was  also  urged  against  the 
tax  on  receipts  that  the  amount  yielded  by  the  tax  fluc- 
tuates from  year  to  year,  and  falls  off  very  largely  in 
times  of  business  depression.  This  is  fortunate  for  the 
railroads,  but,  as  the  State's  fiscal  requirements  are  as 
large  in  such  periods  as  in  prosperous  times,  the  tax 
burdens  borne  by  real  estate  and  other  forms  of  property 
are  necessarily  made  heavier. 

Earnings  are  given  much  weight  in  the  States  where 
railroads  are  taxed  as  property  and  assessed  by  a  State 
board.  In  those  States  where  the  railroads  are  required 
to  pay  an  annual  franchise  tax,  the  value  of  their  fran- 
chise is  determined  to  a  large  degree  by  the  earnings 
received  by  the  corporations  having  the  franchise.  Thus, 
although  the  tendency  in  some  States  is  away  from  the 
plan  of  taxing  gross  earnings  directly  and  toward  the  plan 
of  taxing  railroads  as  property,  more  rather  than  less 
consideration  is  being  given  to  earnings  as  the  basis  upon 
which  the  State's  levies  shall  rest. 

In  taxing  directly  the  earnings  of  railroads  it  has  been 
necessary  for  each  State  to  confine  itself  to  the  earnings 
derived  from  the  business  carried  on  entirely  within  the 
State.  The  Supreme  Court  has  held  that  a  tax  on  gross 
receipts  as  such  derived  from  interstate  business  is  a 
tax  on  interstate  commerce  which  the  States  have  no 
power  to  tax.  This  constitutional  objection  is  got  around 
by  the  device  adopted  in  some  States  of  levying  an  an- 
nual license  fee  or  franchise  tax  upon  each  company.  In 
Wisconsin,  for  instance,  the  tax  on  earnings  is  a  "  license 


RAILWAY  TAXATION  413 

fee."  The  Supreme  Court  has  upheld  the  validity  of  such 
State  taxes,  although  the  value  of  the  franchise  taxed  re- 
sults from  interstate  as  well  as  State  traffic. 

A  tax  on  the  net  receipts  of  railroads  has  frequently 
been  advocated  as  one  possessing  great  merits,  but  the 
system  has  not  yet  been  adopted  by  any  of  the  American 
States.  In  England,  Prussia,  and  France  the  net  receipts 
of  the  railroads  is  one  of  the  bases  upon  which  tax  levies 
are  made.  This  method  of  taxing  railroads  is  theoretic- 
ally attractive  for  several  reasons.  A  tax  on  net  receipts 
would  not  be  open  to  the  objection  sometimes  urged 
against  one  on  gross  income,  viz.,  that  it  would  discour- 
age expenditures  for  improvements  of  the  service  and  the 
equipment.  The  distribution  of  burdens  among  the  sev- 
eral companies  affected  would  be  equitable  if  net  earnings 
were  made  the  basis  of  assessment,  and  the  administration 
of  the  tax  law  would  be  a  simple  task,  provided  each 
State  before  passing  the  tax  law  should  require  the  rail- 
roads under  its  jurisdiction  to  adopt  a  uniform  and  cor- 
rect system  of  accounting  whereby  the  State  might  be 
able  to  determine  whether  the  companies  actually  re- 
ported their  real  net  earnings.  This,  however,  suggests 
the  practical  objection  to  making  the  net  income  the 
basis  of  taxation  in  the  American  States.  The  States 
generally  do  not  insist  upon  a  system  of  railroad  accounts 
and  reports  that  would  enable  the  Government  to  admin- 
ister successfully  a  tax  on  net  receipts.  When  the  admin- 
istrative machinery  has  been  sufficiently  developed  the 
incorporation  of  a  tax  on  net  receipts  of  railroad  compa- 
nies into  the  general  system  of  railroad  taxation  will 
be  advantageous,  l^et  receipts  should  not  be  made  the 
sole  basis  of  railroad  taxation,  because  the  returns  from 
the  tax  would  fluctuate  largely  and  would  be  especially 
small  in  periods  of  business  depression. 

In  theory  a  tax  on  the  franchise  of  a  corporation  is  a  fee, 


414  AMERICAN  RAILWAY  TRANSPORTATION 

or  a  payment,  which  the  State  exacts  in  return  for  some- 
thing of  value  that  has  been  given  to  the  corporation.  In 
many  instances,  and  this  is  particularly  true  of  street-rail- 
ways, the  franchise  given  by  the  State  is  a  very  valuable 
part  of  the  company's  property.  In  over  half  the  States  the 
railroad  companies  are  required  to  pay  a  franchise  tax.  The 
value  of  the  franchise  is  determined  for  purposes  of  taxation 
in  various  ways  in  different  States.  '  The  receipts,  profits, 
dividends,  value  of  the  capital  stock,  the  amount  of  bonds, 
and  numerous  other  criteria  of  value  are  adopted  in  fixing 
the  worth  of  the  franchise.  Indeed,  the  franchise  tax 
does  not  represent  any  specific  kind  of  assessment,  but 
is  rather  an  indirect  tax  upon  some  one  or  more  things 
that  give  value  to  the  company's  franchise.  From  the 
legal  standpoint  the  franchise  tax  has  great  importance, 
because  it  enables  the  States  to  avoid  several  difficulties. 
The  constitutions  of  some  States  require  the  taxes  on 
property  to  be  uniform,  but  by  means  of  a  franchise  tax 
the  levy  on  railroad  property  may  be  very  different 
from  that  on  other  forms  of  wealth;  the  inability  of  the 
States  to  tax  interstate  commerce  directly  is  overcome 
by  imposing  a  tax  on  the  franchises  of  companies  engaged 
in  that  commerce;  again,  the  company  may  own  prop- 
erty located  outside  the  State,  and  thus  not  be  subject 
to  taxation  by  the  State,  but,  by  taxing  the  company's 
franchise,  that  property  can  be  levied  on;  and,  although; 
a  State  may  legally  tax  directly  only  that  portion  of  the 
capital  stock  that  is  employed  by  the  company  in  con- 
ducting its  business  within  the  State,  the  entire  capitali- 
zation may  in  effect. be  reached  by  means  of  an  assess- 
ment against  the  value  of  the  franchise.  The  elasticity 
of  the  franchise  tax  is  making  it  a  popular  method  of 
taxing  railroad  and  other  large  corporations. 

Whether  the  basis  of  the  tax  levy  be  made  the  property 
of  the  railroad  company,  or  its  capitalization  or  its  earn- 


RAILWAY  TAXATION  415 

ings,  it  is  necessary  for  each  State,  in  theory  at  least,  to 
confine  its  taxes  to  the  property  within  its  boundaries. 
As  most  railroads  are  interstate  in  extent,  some  method 
of  dividing  the  company's  property  or  taxable  elements 
among  the  several  States  in  which  its  lines  are  located 
becomes  necessary.  The  plan  generally  followed  is  for 
each  State  to  tax  that  share  of  the  total  rolling-stock, 
capitalization,  or  earnings  of  the  company  that  is  repre- 
sented by  the  ratio  which  the  mileage  of  line  within  the 
State  bears  to  the  company's  total  mileage.  This  method 
of  interstate  prorating  of  taxes  has  been  upheld  by  the 
United  States  Supreme  Court. 

The  methods  of  taxing  railroads  are  varied,  and  the 
same  corporation  is  usually  taxed  by  several  States.  From 
this  it  frequently  results  that  railway  property  is  subjected 
to  more  than  one  tax.  This  is  called  double  taxation. 
Property  that  pays  more  than  one  tax  may  or  may  not  be 
excessively  taxed.  Double  taxation  is  not  necessarily  un- 
just taxation.  The  imposition  of  more  than  one  tax  upon 
a  railway  or  other  property  may  be  caused  in  three  ways: 
A  State  may  place  more  than  one  tax  on  the  same  property; 
two  States  may  tax  the  same  object;  and,  third,  the  taxa- 
tion of  different  persons  or  owners  may  involve  double 
taxation  of  the  same  property. 

In  taxing  railroads  it  is  not  the  practise  of  the  States 
to  assess  both  the  property  of  the  company  and  the  bonds 
or  indebtedness  of  the  company.  Nor  do  any  of  the 
States  tax  the  stock  of  the  company  without  first  deduct- 
ing from  the  value  of  the  stock  the  amount  of  the  prop- 
erty that  has  been  taxed.  To  tax  both  the  securities  and 
the  property  would  be  double  taxation,  and  this  has  usu- 
ally been  avoided. 

Double  taxation  resulting  from  levies  made  by  sepa- 
rate States  has  not  been  altogether  prevented.  The  rail- 
road company,  however,  seldom  pays  taxes  on  the  same 


416  AMERICAN  RAILWAY  TRANSPORTATION 

property  to  more  than  one  State,  because  property  is 
assessed  and  taxed  only  by  the  State  in  which  it  is  located. 
In  the  case  of  rolling-stock  or  floating  equipment  there 
is  usually  a  prorating  among  the  States  on  the  basis  of 
proportionate  mileage.  Each  of  the  States  now  taxing- 
railroad  securities  endeavors  to  assess  only  that  part  of 
the  total  capital  employed  in  the  business  conducted 
within  the  State.  It  is  legal  for  each  State  to  tax  all  the 
stock  of  the  railroad  companies  having  their  home  in  the 
State,  but  this  power  is  not  exercised.  Double  taxation 
is  most  apt  to  result  from  taxing  receipts,  usually  by 
means  of  franchise  taxes.  Each  State  may  tax  its  rail- 
road corporations  upon  their  entire  gross  receipts  derived 
from  traffic  carried  on  without  as  w^ell  as  within  the  State, 
provided  the  form  of  the  tax  is  that  of  a  franchise  tax 
or  fee.  These  franchise  taxes  are  usually  not  high,  and 
if  double  taxation  results  from  them  the  burden,  if  any, 
is  not  large. 

Double  taxation  is  sometimes  caused  by  laws  which 
tax  a  corporation  on  the  basis  of  its  capital  stock,  and  also 
tax  the  individual  holders  of  the  shares.  Such  laws  are 
not  to  be  commended,  however,  not  so  much  because 
the  double  taxation  is  inadvisable  as  because  securities 
held  by  individuals  are  easily  concealed  from  the  assessor. 
Tax  laws  that  can  not  be  enforced  are  unwise,  and  there 
is  a  growing  tendency  to  exempt  the  individual  holdings 
of  corporate  securities,  when  the  corporation  itself  is 
taxed  either  on  its  capitalization  or  by  other  methods. 

The  lack  of  uniformity  among  the  States  in  the  taxation 
of  railroads  results  in  the  unequal  distribution  of  the  tax 
burdens  among  the  railway  systems.  In  some  sections  of 
the  country  the  taxes  in  1899  equaled  17  per  cent  of  the 
net  earnings  of  the  railroads,  and  in  other  sections  only  8.4 
per  cent.  It  would  be  somewhat  better  for  the  railroad 
companies  were  the  systems  of  taxation  simplified,  re- 


RAILWAY  TAXATION  417 

duced  in  number,  and  made  uniform  in  principle  (not 
in  rate  or  amount  of  taxes)  in  different  parts  of  the 
country.  There  is  manifest  a  tendency  for  each  State 
to  centralize  the  administration  of  its  tax  laws,  and  as 
time  goes  on  the  better  systems  of  taxation  will  gradually 
be  adopted  by  all  the  States.  Complete  uniformity  in  the 
practises  of  so  many  States  can  hardly  be  expected. 

One  method  of  securing  a  uniform  system  would  be 
the  substitution  of  Federal  taxes  on  railroads  in  place  of 
those  now  imposed  by  the  States.  The  United  States 
could  tax  only  interstate  transportation,  but  by  so  doing 
it  could  reach  practically  all  the  railroads.  In  order  to 
administer  a  system  of  taxes  on  interstate  commerce,  the 
United  States  Government  would  be  obliged  to  secure 
certain  information  that  it  does  not  now  possess  regard- 
ing the  finances  and  the  traffic  of  railroads.  The  pos- 
session of  that  information  and  the  exercise  of  the  tax- 
ing power  would  assist  in  making  more  effective  the 
governmental  regulation  of  transportation.  It  seems  log- 
ical that  the  development  of  great  systems  of  interstate 
railways  and  the  consolidation  of  those  systems  into  a 
small  number  of  groups  should  lead  to  the  change  from 
State  to  Federal  taxes  on  railroads,  just  as  local  taxa- 
tion has  given  place  to  State  levies.  But  the  States 
will  hardly  agree  to  give  up  the  taxation  of  railroads. 
They  need  the  revenue  to  be  obtained  from  that  source, 
and  if  the  United  States  should  deprive  the  States  of 
the  proceeds  from  railroad  taxation,  the  funds  (or  a 
large  share  of  them)  thus  obtained  by  the  ]N"ational  Gov- 
ernment would  need  to  be  distributed  among  the  States. 
Such  a  system  of  taxation,  involving  the  collection  of  a 
large  Federal  surplus  to  be  distributed  among  the  States, 
is  hardly  to  be  recommended,  at  least  at  the  present  time. 

During  the  fiscal  year  1901  the  total  amount  of  taxes 
paid  by  the  railroads  in  the  United  States  was  $50,944,- 
28 


418  AMERICAN  RAILWAY  TRANSPORTATION 

372.  In  each  of  three  States,  Illinois,  New  York,  and 
Pennsylvania,  the  payments  exceeded  $4,000,000.  The 
heaviest  taxes  per  mile  of  road  v^^ere  paid  in  Massachu- 
setts, which  received  $1,366  per  mile.  Connecticut  came 
second,  with  taxes  of  $1,006  per  mile  of  road.  Although 
the  total  railroad  taxes  paid  in  Illinois  amounted  to 
$4,655,000,  the  sum  per  mile  was  only  $420.  Several 
States  were  ahead  of  Illinois  in  the  sum  received  per  mile 
of  line. 

]!^early  seven-tenths  of  the  total  amount  received  came 
from  taxes  levied  directly  on  property — a  fact  showing 
that  property  is  still  the  favored  basis  of  levies.  In  addi- 
tion to  the  property  tax,  the  receipts  from  property  valua- 
tions fixed  with  reference  to  the  value  of  stocks  and 
bonds  and  with  reference  to  earnings  and  dividends 
slightly  exceeded  $5,000,000.  Specific  taxes  on  stocks 
and  bonds  yielded  less  than  $1,000,000,  and  direct  or 
specific  taxes  on  gross  earnings  and  dividends  produced 
about  $7,000,000.  This  last  figure  is  of  especial  signifi- 
cance, because  it  shows  that  although  writers  have  for 
some  time  been  urging  a  change  from  levies  based  on 
valuations  to  those  placed  on  gross  or  net  earnings,  the 
States  have  been  slow  to  make  the  substitution.  The 
tax  on  gross  receipts  is  probably  growing  in  favor,  but 
not  rapidly. 

Taking  the  railroads  of  the  United  States  as  a  whole, 
the  sum  paid  by  them  for  taxes  is  not  excessive.  In  1901 
the  tax  payment  equaled  less  than  one-half  per  cent  of  the 
total  amount  of  stocks  and  bonds,  and  but  a  little  more 
than  3  per  cent  of  the  gross  earnings  from  operation. 

The  general  tendencies  manifest  in  the  legislation  of 
the  States  regarding  railroad  taxation  may  be  summarized 
as  follows: 

1.  Railroads  are  being  taxed  by  a  system  different 
from  that  applied  to  individuals,  and  the  tendency  is  to 


RAILWAY  TAXATION  419 

centralize  the  administration  of  railroad  taxes  by  placing 
them  in  charge  of  State  boards. 

2.  Taxes  on  property  are  being  supplemented  by 
levies  on  capitalization,  profits,  and  earnings. 

3.  The  property  tax  locally  assessed  on  railroads  is 
coming  to  include  only  real  estate. 

4.  Corporation  taxes  in  the  form  of  organization  fees 
and  annual  franchise  taxes  are  growing  in  favor. 

5.  The  tendency  is  to  exempt  from  taxation  the  indi- 
vidual holdings  of  securities  and  to  tax  the  corporation 
itself. 

6.  The  States  are  endeavoring  as  far  as  possible  to  tax 
in  the  same  manner  all  railroad  corporations,  whether 
chartered  by  the  State  levying  the  tax  or  by  some  other 
State. 

REFERENCES    FOR    FURTHER    READING 

McCkea,  R.  C.  1.  Taxation  of  Transportation  Companies,  Report 
of  Industrial  Commission,  vol.  ix,  pp.  1005-1091.  [This  mono- 
graph by  Dr.  McCrea  covers  the  subject  in  detail  and  contains  a 
good  bibliography  of  the  literature  of  the  subject.] 

2.  Tendencies  in  Taxation  of  Transportation  Companies  in  the  United 
States,  Annals  of  the  American  Academy  of  Political  and  Social 
Science,  vol.  xv,  pp.  355-380,  1900. 

Report  of  the  Industrial  Commission,  vol.  iv,  pp.  599-610,  testimony 
of  Prof.  E.  R.  A.  Seligman;  vol.  ix,  pp.  clxxxix-cxciii  and  373- 
384,  testimony  of  Prof.  Henry  C.  Adams. 

Railways  in  the  United  States  in  1902.  Part  V.  "State  Taxation 
of  Railways  and  other  Transportation  Agencies."  A  report  pre- 
pared for  the  Interstate  Commerce  Commission  by  its  Statis- 
tician. 


•  CHAPTEK    XXIX 

THE  PROBLEM  OF  GOVERNMENT  REGULATION 

The  problem  of  the  government  regulation  of  railways 
varies  in  its  concrete  manifestation  from  time  to  time, 
but  the  general  problem  is  a  permanent  one.  The  aim 
sought  by  the  carriers  is  an  increasing  business  at  rates 
that  will  yield  as  large  profits  as  can  be  obtained  without 
interfering  with  the  growth  of  traffic;  the  interests  of  the 
public  served  by  the  railroads  require  that  the  service  shall 
be  progressively  efficient,  that  the  charges  shall  be  as 
stable  as  general  business  conditions  warrant,  and  shall 
be  neither  unreasonably  high  nor  unjustly  discriminatory 
as  between  persons,  places,  or  kinds  of  traffic.  It  was 
hoped  for  a  time  that  the  interplay  of  competitive  forces 
and  the  struggles  of  rival  interests  would  result  in  an 
equitable  and  satisfactory  adjustment  of  the  relations  of 
the  carriers  with  each  other  and  with  the  public,  but  the 
entire  history  of  railroad  transportation  in  every  country 
is  an  illustration  of  the  inadequacy  of  the  theory  of  non- 
interference on  the  part  of  the  government. 

There  are  two  parts  to  the  permanent  problem  of 
government  regulation  of  railroad  transportation,  two 
duties  devolving  on  the  state.  One  is  to  adjust  the  rela- 
tions of  the  carriers  with  each  other ;  the  other  is  to  main- 
tain an  equitable  relationship  between  the  public  and  the 
carriers.  The  theory  concerning  the  interrelations  of 
the  carriers  that  has  generally  been  adhered  to  in  the  laws 
of  the  United  States  and  the  several  American  States  has 
420 


THE  PROBLEM  OP  GOVERNMENT  REGULATION    421 

been  that  the  several  railroad  companies  should  act  inde- 
pendently and  should  actively  compete  with  each  other 
as  regards  traffic  and  rates.  Neither  pooling  arrange- 
ments nor  agreements  concerning  the  making  and  mainte- 
nance of  reasonable  rates  have  been  sanctioned  by  law. 

Just  what  effects  have  resulted  from  the  adherence  to 
this  unsound  policy  can  hardly  be  determined,  but  two 
facts  are  certain:  (1)  The  policy  made  the  prevention  of 
unreasonable  discriminations  more  difficult.  Whether 
they  could  have  been  eliminated  even  by  allowing  the  rival 
railways  to  cooperate  under  governmental  supervision 
may  possibly  be  somewhat  doubtful;  but  that  the  effect 
of  attempts  to  compel  competition  has  been  to  increase 
discriminations  there  can  be  no  question.  (2)  The  laws 
against  pooling  and  cooperation  of  rival  carriers  have 
not  kept  the  carriers  apart.  Since  1898  the  railroad 
companies  have  been  developing  larger  systems  and 
greater  unity  of  management  at  a  rate  few  people 
would  have  dared  to  predict.  Cooperation  among  rail- 
roads in  rate-making  and  in  the  division  of  traffic  free  to' 
move  by  more  than  one  route  is  being  accomplished  by 
methods  that  are  highly  efficient.  Indeed,  that  part  of 
the  problem  of  government  regulation  of  carriers  which 
has  to  do  with  the  maintenance  of  the  proper  interrela- 
tions among  the  railroad  companies  has  assumed  a  new 
phase. 

To  the  extent  that  the  laws  against  cooperation  of  rival 
carriers  were  effective,  it  became  the  duty  of  the  Govern- 
ment to  endeavor  to  enforce  such  interrailway  relations 
as  would  protect  the  carriers  as  well  as  the  public  against 
the  harmful  effects  of  unbridled  competition.  ]^ow  that 
the  carriers  are  able  to  cooperate  with  great  efficiency  it 
has  become  the  duty  of  the  Government  to  scrutinize 
closely  the  methods  and  results  of  that  cooperation  to 
make  sure  that  the  railway  companies  do  not  exercise,  in 


422  AMERICAN  RAILWAY  TRANSPORTATION 

such  a  way  as  to  do  injustice,  their  monopoly  powers, 
which,  though  partial,  are  yet  strong  enough  to  demand 
public  supervision. 

The  Government's  obligation  to  maintain  an  equitable 
relationship  between  the  carriers  and  the  public  is  as  great 
to-day  as  it  ever  has  been.  The  problem  has  a  different 
form  than  it  has  had  in  the  past  or  may  have  in  the  future, 
but  in  essence  the  question  is  a  permanent  one,  and  consists 
in  harmonizing  as  far  as  possible  the  interests  of  the  pri- 
vate corporations  of  a  quasi-public  character  engaged  for 
profit  in  the  performance  of  a  service  of  a  public  nature, 
with  the  interests  of  the  individuals,  the  localities,  and  the 
general  public  served  by  the  carriers.  This  general  prob- 
lem is  a  continuing  one,  but  the  specific  reason  for  Govern- 
ment regulation  will  vary  from  time  to  time,  and  may  be, 
as  it  was  in  1870,  to  secure  cheaper  rates  to  the  seaboard 
for  the  agricultural  products  of  the  Central  States*  or 
may  be,  as  was  particularly  the  case  during  the  period 
from  1870  to  1890,  to  adjust  the  rates  charged  at  the  small 
local  towns  and  at  the  large  cities;  or  the  reasons  may  be, 
as  at  the  present  time,  to  secure  relatively  reasonable  rates 
for  rival  areas  of  production  and  for  rival  economic  inter- 
ests in  the  same  area  of  production.  The  progress  of  rail- 
way consolidation  may  again  give  prominence  to  the  ques- 
tion of  extortionate  rates,  for  although  the  railway  serv- 
ice is  not  a  complete  monopoly,  there  is  no  doubt  as  to  the 
ability  of  a  consolidated  control  unrestrained  by  public 
regulation  to  exact  higher  charges  than  justice  would  war- 
rant. 

The  problem  of  railway  regulation  is  being  merged  to 
some  extent  with  the  general  and  larger  problem  of  the 
public  control  of  corporations.  This  has  come  about 
mainly  in  two  ways:  by  the  application  of  the  Sherman 
antitrust  law  of  1890  to  railroads  and  by  the  passage  of 
the  Elkins  law  in  1903.     In  enacting  the  Sherman  anti- 


THE  PROBLEM   OF  GOVERNMENT  REGULATION    423 

trust  law  Congress  had  only  industrial  combinations  in 
mind;  but  the  rulings  of  the  Supreme  Court  have  made 
the  law  an  important  part  of  our  legislation  for  the  regula- 
tion of  railroads.  Indeed,  the  interpretation  of  the  law 
thus  far  has  been  to  give  it  a  wide  application  to  inter- 
railway  relations  and  a  very  limited  influence  upon  the 
relations  of  industrial  corporations  with  each  other.  As 
a  measure  for  the  control  of  interrailway  relations  the 
law  is  faulty  in  that  it  makes  illegal  practically  all  coop- 
erative action  on  the  part  of  rival  carriers.  The  public 
interest  requires  the  joint  action  of  carriers  in  making 
and  maintaining  rates,  and  the  problem  of  preventing 
railway  discriminations  has  been  complicated  instead  of 
simplified  by  the  Sherman  Antitrust  Act.  There  are  un- 
doubtedly various  kinds  of  combinations  among  railroads 
that  are  opposed  to  the  public  welfare,  and  it  is  quite  pos- 
sible that  such  deleterious  combinations  may  be  reached 
by  the  law  of  1890.  The  necessity  seems  to  be  for  the 
modification  rather  than  for  the  repeal  of  the  law. 

The  recent  demand  for  Federal  legislation  for  the  regu- 
lation of  the  "  trusts  "  led  to  the  passage  of  the  Elkins 
law,  which  is  intended  to  prevent  unjust  discriminations 
in  railway  charges.  Instead  of  amending  and  developing 
the  Sherman  act  of  1890,  Congress  chose  to  give  the  new 
Department  of  Commerce  and  Labor  certain  inquisitorial 
powers  over  corporations,  and,  by  the  Elkins  law,  to  make 
it  more  dangerous  and  more  difficult  for  the  large  ship- 
pers to  secure  special  and  discriminating  rates.  The 
theory  of  the  Elkins  law  is  that  the  greatest  advantage 
over  the  independent  producer  which  the  "  trust "  can 
secure  is  a  special  rate  from  the  railroads,  and  the  framers 
of  the  law  believe  that  the  elimination  of  unjust  discrimi- 
nations will  do  much  to  prevent  large  corporations  from 
oppressing  the  public.  The  thought  back  of  the  Elkins 
law,  as  an  antitrust  measure,  is  that  with  equality  of  ad- 


42^1:  AMERICAN  RAILWAY  TRANSPORTATION 

vantage  as  regards  transportation,  the  small  producer  can 
prevent  the  large  producer  from  monopolizing  the  field  of 
production  and  exacting  extortionate  charges  from  the  con- 
sumer. The  law  has  not  heen  in  force  long  enough  to  in- 
dicate what  results  will  be  accomplished,  but  the  theory 
upon  which  the  law  is  based  has  much  to  commend  it. 

The  Elkins  law  has  appreciably  strengthened  the  legis- 
lation for  the  regulation  of  railroads.  The  corporation, 
as  well  as  the  officer  or  agent,  is  now  liable  to  prosecution 
for  a  violation  of  the  law ;  the  imprisonment  clause  of  the 
interstate  commerce  law  has  been  repealed,  and  all  mis- 
demeanors are  made  punishable  by  fines.  The  penalty  for 
deviating  from  the  published  and  lawful  rates  is  a  heavy 
fine  of  not  less  than  $1,000  or  more  than  $20,000  for  each 
offense,  and  the  acceptance  as  well  as  the  offer  of  a  rebate 
or  discrimination  is  made  a  misdemeanor.  The  Elkins 
law  also  gives  statutory  authority  for  the  issue  by  the 
United  States  circuit  courts  of  writs  of  injunction  order- 
ing carriers  not  to  charge  less  than  the  published  rates  and 
not  to  make  any  discrimination  forbidden  by  law.  Al- 
though this  authority  had  been  exercised  by  the  Federal 
courts  in  1902,  there  was  some  doubt  as  to  the  power  of 
the  courts  to  take  such  action.  The  Elkins  law  empowers 
the  Interstate  Commerce  Commission  to  petition  for  such 
an  injunction  whenever  it  has  reasonable  ground  for  be- 
lief that  discriminations  are  being  practised,  and  the  law 
makes  it  "  the  duty  of  the  several  district  attorneys  of  the 
United  States,  whenever  the  Attorney-General  shall  di- 
rect, either  of  his  own  motion  or  upon  the  request  of  the 
Interstate  Commerce  Commission,'  to  institute  and  prose- 
cute the  proceedings  provided  for  by  this  act."  The  law 
further  provided  for  the  expeditious  and  speedy  deter- 
mination by  the  Circuit  Court  of  all  cases  brought  for  the 
enforcement  of  the  law.  "  An  appeal  from  the  final  de- 
cree of  the  Circuit  Court  will  lie  only  to  the  Supreme 


THE  PROBLEM  OF  GOVERNMENT  REGULATION    425 

Court  and  must  be  taken  within  sixty  days  from  the  entry 
thereof." 

While  legislation  has  fixed  the  general ,  scope  of  the 
governmental  regulation  of  transportation,  the  efficiency  of 
governmental  control  has  been  determined  mainly  by  the 
actions  of  the  courts  in  interpreting  the  law  and  in  exer- 
cising their  equity  powers.  There  have  been  few  changes 
made  by  Congress  in  the  act  to  regulate  commerce  passed 
in  1887,  but  the  activities  of  the  Federal  courts  during  the 
past  sixteen  years  have  resulted  in  an  important  organic 
growth  in  the  laws  and  public  obligations  to  which  public 
carriers  are  amenable. 

With  the  exception  of  the  act  approved  February  11, 
1893,. strengthening  the  power  of  the  Interstate  Commerce 
Commission  to  compel  witnesses  to  testify  and  produce 
documentary  evidence,  the  changes  made  in  the  law  of 
1887  before  the  passage  of  the  Elkins  act  related  to  rela- 
tively minor  details.  Two  supplementary  laws  of  impor- 
tance to  the  public  welfare  were  enacted.  One  act  was  the 
safety  appliance  law^  of  March  2,  1893,  requiring  the  rail- 
road companies  to  equip  their  cars  with  automatic  couplers 
and  their  engines  and  cars  with  power-brakes.  The  other 
act  was  approved  March  3,  1901,  and  requires  all  railroad 
companies  engaged  in  interstate  commerce  to  make  full 
monthly  reports  to  the  Interstate  Commerce  Commission 
of  all  accidents.  These  supplementary  acts,  while  con- 
stituting a  valuable  addition  to  our  laws,  do  not  deal  with 
the  main  problem  of  government  control  of  transportation, 
the  regulation  of  rates  and  the  prevention  of  discrimina- 
tions. Though  annually  urged  by  the  Interstate  Commis- 
sion to  recast  and  strengthen  the  main  provisions  of  the  act 
of  1887,  so  that  the  commission  might  at  least  possess  the 
powers  which  that  law  was  intended  to  confer  on  that 
body.  Congress  deemed  wise  to  delay  action  until  1903, 
when  the  agitation  for  the  regulation  of  trusts  and  large 


426  AMERICAN  RAILWAY  TRANSPORTATION 

corporations  resulted  in  the  Elkins  law  to  restrict  discrim- 
inations in  railroad  charges. 

Although  Congress  has  done  little  to  change  the  act  of 
1887,  the  courts  have  done  much,  and  the  result  has 
been  that  since  1897  the  Interstate  Commerce  Commission 
has  possessed  no  effective  power  to  adjust  railway  charges. 
In  an  increasing  measure  the  work  of  regulating  trans- 
portation charges  has  been  taken  up  by.  the  Federal  courts ; 
but  although  the  enlargement  of  the  activity  of  the  courts 
has  been  beneficial  and  may  be  even  more  so  in  the  future, 
the  necessity  for  the  further  development  of  legislation 
regarding  railway  regulation  and  the  desirability  of  keep- 
ing the  Interstate  Commerce  Commission  equipped  with 
effective  powers  have  in  no  wise  lessened.  However  active 
and  intelligent  the  courts  may  be  in  dealing  with  transpor- 
tation questions,  they  can  not  adequately  cope  with  the 
economic  problem  of  rate  adjustment.  The  actions  of  the 
courts  must  be  mainly  negative  and  preventive;  their 
methods  of  procedure  are  such  that  the  courts  are  not  so 
well  adapted  as  a  commission  is  to  deal  constructively  with 
such  a  complicated  and  varying  economic  problem  as  the 
supervision  of  transportation  charges  and  their  equitable 
adjustment  among  the  rival  social  and  economic  interests. 
This  fact  seems  now  to  be  generally  recognized  in  the 
United  States,  but  there  are  differences  of  opinion  as  to 
the  nature  of  the  powers  that  should  be  vested  in  the 
Interstate  Commerce  Commission.  There  has  been  a  vir- 
tual deadlock  in  legislation  for  some  years  because  the 
powerful  interests  that  would  be  affected  by  the  legislation 
can  not  agree  as  to  what  shall  be  done. 

The  interest  of  the  public  in  the  problem  of  railway 
regulation  has  been  temporarily  lessened  by  the  prosperity 
which  all  classes  are  enjoying  and  by  the  fact  that  railway 
discriminations  have  been  much  less  frequent  during  the 
past  five  years  than  they  previously  were.     When  over- 


THE  PROBLEM  OF  GOVERNMENT  REGULATION    427 

run  with  traffic  a  railroad  company  may  be  expected  to 
observe  its  published  rates  in  its  dealings  with  all  people 
except  possibly  a  few  of  the  largest  shippers  who  are  in  a 
position  to  offer  traffic  in  train-load  lots  to  two  or  more 
railroad  companies.  But  if  personal  discrimination  due 
to  unlawful  deviations  from  the  published  rates  were 
eliminated,  the  necessity  for  Government  regulation  would 
not  have  ended.  A  proper  adjustment  of  rates  means,  first, 
that  the  published  rates  shall  be  what  they  ought  to  be,  and 
second,  that  the  published  rates  shall  be  maintained  until 
they  become  unreasonable  and  others  are  substituted  for 
them  according  to  methods  prescribed  by  law.  Inasmuch 
as  past  experience  has  clearly  demonstrated  that  the  inter- 
play of  rival  private  interests  can  not  be  expected  to  secure 
the  equitable  adjustment  of  railroad  charges,  we  must  in 
the  future,  as  we  have  in  the  past,  endeavor  by  effective 
public  regulation  to  minimize  the  inequities  certain  to  arise 
in  the  charges  imposed  by  the  carriers  engaged  in  perform- 
ing the  transportation  service  for  a  country  so  large  as  the 
United  States. 

The  regulation  of  railroads  in  the  United  States  is  ap- 
parently not  to  be  accomplished  by  means  of  Government 
ownership.  The  commission  system  has  been  on  trial  in 
the  States  for  thirty  years  and  in  the  National  Govern- 
ment for  sixteen  years,  and  while  the  results  accomplished 
are  not  fully  satisfactory,  the  system  has  not  been  a  fail- 
ure. The  success  of  the  Federal  commission  has  been 
far  less  than  it  might  have  been  had  the  demonstrated  de- 
fects in  the  law  of  1887  been  corrected ;  but  the  wisest  plan 
for  the  United  States  to  follow,  at  least  in  the  immediate 
future,  is  to  improve  the  methods  and  agencies  of  regula- 
tion now  being  employed,  rather  than  to  attempt  the  enor- 
mous task  of  purchasing  and  operating  two-fifths  of  the 
railway  mileage  of  the  world. 


INDEX 


Accounts,  railway,  195;  necessity  for 
uniformity  in,  365. 

Adams,  Alvin,  organizes  express  com- 
pany, 162. 

Adams,  Prof.  Henry  C,  method  of 
valuing  railroad  property,  92 ;  on 
railway  mail  service,  183. 

Advertising,  railway,  148. 

Agents,  industrial,  268. 

Agreements,  inter-railway,  213. 

Aid,  government,  to  railways,  307,  308 ; 
in  France,  331. 

Air  brake,  first  used,  48. 

Allen,  Horatio,  engineer,  42. 

Anthracite  coal  roads,  56. 

Atchison,  Topeka,  and  Santa  Fe  Rail- 
way, 60 ;  government  aid  to,  314. 

Atlantic  and  Pacific  Railway,  govern- 
ment aid  to,  314. 

Auditing,  railway,  195. 

Australia,  railways  of,  292,  347. 

Austria,  railways  of ,  292,  335,  344, 
349 ;  fares  in,  297 ;  freight  rates  in, 
302. 

Baggage,  system  of  checking,  147. 
Baldwin,  Matthias,  locomotive  builder, 

40. 
Baltimore  and  Ohio  Railway,  21,  26,  38, 

217,  219,  227. 
Belgium,   railways    of,   67,   325,  344; 

passenger  traffic  in,  140. 
Best  Friend,  locomotive,  40. 
Bill  of  lading,  119,  122. 
Bismarck,  policy  in  regard  to  railways, 

339. 
Bonds,  railroad,  76,  78,  89. 
Boston  and  Albany  Railway,  22. 
Bridges,  railway,  38. 


British  Railway  Clearing-House,  130, 

330. 
Brooks,  James,  locomotive  builder,  43. 

Camden  and  Amboy  Railway,  22. 

Campbell,  Henry  R.,  locomotive  de- 
signer, 43. 

Canadian  Pacific  Railway,  145. 

Canal  building  in  the  United*  States, 
14,  308,  350. 

Capital,  defined,  5. 

Capitalization,  railroad,  76,  78,  207. 

Cars,  first  American  passenger,  42. 

Census,  United  States,  railr^^ad  statis- 
tics, 205. 

Central  Pacific  Railway,  60;  Central 
Railroad  of  New  Jersey,  64 ;  govern- 
ment aid  to,  313,  316. 

Central  Traffic  Association,  244. 

Charters,  railway,  whence  derived,  73. 

Charleston  and  Hamburg  Railway,  21, 
38,  40,  42. 

Chesapeake  and  Ohio  Canal,  16. 

Chicago,  Burlington,  and  Quincy  Rail- 
way, 60,  89. 

Chicago,  Milwaukee,  and  St.  Paul  Rail- 
way, 145. 

Chicago-Omaha  Pool,  230. 

Chicago,  Rock  Island,  and  Pacific 
Railway,  26. 

City  governments,  aid  given  by,  in 
railway  building,  308,  319. 

Civil  war,  effect  on  railway  building, 
26. 

Classification  of  freight,  113,  285;  of 
railways,  52,  60. 

Clearing-House,  British  Railway,  130, 
330. 


430 


AMERICAN   RAILWAY  TRANSPORTATION 


Coaches,      railway,      European     and 

American,  46. 
Coal,  agreements  of  railroads  in  regard 

to  mining  and  carrying,  234. 
Coal  roads,  the  anthracite,  56. 
Columbia  Railway,  22,  86. 
Commerce,  relation  of  transportation 

to,  4 ;  value  of  freight  service  to.  111. 
Commission,    British    Railway,    328 ; 

Interstate  Commerce,  367,  369. 
Commissions,  State  Railway,  202,  349, 

352. 
Commodity  tariffs,  1 16,  286. 
Community  of  interest,   consolidation 

by,  251,  253,  259,  405. 
Commutation  service,  148. 
Competition,  results  of,  217;    in  the 

railway  service,  258. 
Competition  of  markets,  265. 
Conestoga  wagon,  the,  15. 
Consolidation,  of  railway  and  business 

interests,  2.58 ;  causes  of,  247,  250 ; 

effects  of,  405 ;   necessity  for,  224 ; 

principles  influencing,  259 ;  railway 

in  Great  Britain,  329. 
Consumption   of  wealth,   relation    of 

transportation  to,  3. 
Control,  government.    See  Regulation, 

Government. 
Control,  stock,  consolidation  by,  2.51. 
Cooper,  Peter,  locomotive  designed  by, 

39. 
Corporations,  defined,  69 ;  private  and 

public,  71 ;  railway,  69 ;  number  of, 

in  the  United  States,  52. 
Cost  of  service,  271. 
Costs,  joint,  273. 
County  governments,  aid  given  by,  in 

railway  building,  308,  319. 
Courts,  relation  of  the,  to  railroad  reg- 
ulation, 386,  426. 
Credit  MobUier,  88. 
CuUom  report,  the,  368. 

Demurrage,  133. 

Departments  of   railway  administra- 
tion, 184. 


De  Witt  Clinton,  locomotive,  40. 
Distribution    of    wealth,    relation   of 

transportation  to,  5. 
Dividends,  82,  97,  103. 
D  wight,   Theodore,  on   corporations, 


Earnings,  97, 137;  net,  100;  relation  to 
capitalization,  91. 

Economics  of  transportation,  2. 

Egypt,  railways  of,  347. 

Electric  railways,  advantages,  155. 

Elkins  law,  the,  422. 

Elliott  on  corporations,  69,  71. 

Empire  Transportation  Company,  127.   v 

Engineering  schools,  province  of,  1. 

Erie  Canal,  opened,  16  ;  effect  on  trade 
of  New  York  City,  219. 

Erie  Railway,  26,  64,  87,  190,  217,  219, 
226. 

Europe,  railway  building  in,  28 ;  rail- 
ways of,  65,  67,  74 ;  mileage,  29. 

«'  Eveners,"  plan  of,  for  regulating 
competition,  235. 

Excursion  rates,  289  ;  trains,  144. 

Expenses,  97. 

Express  service,  158 ;  charges,  164, 167; 
companies,  97,  160  ;  earnings  from, 
163  ;  and  fast  freight,  159  ;  and  the 
mails,  158,  165;  statistics,  165;  for- 
eign, 158. 

Extra-fare  trains,  144. 

Fares,  passenger,  135, 137, 149 ;  in  Eu- 
ropean countries,  291,  293  ;  legisla- 
tion in  regard  to,  351 ;  relation  to 
monopoly,  26^  ;  theory  of,  271 ;  de- 
termination of,  in  practice,  283. 

Fast-freight  service,  127, 159. 

Financial  department,  185. 

Fink,  Albert,  railway  organizer,  232, 
236,  237. 

France,  railways  of,  65,  68,  284,  292, 
322,  330,  346,  349  ;  railway  fares  in, 
296  ;  passenger  traffic  in,  140 ;  freight 
rates  in,  301. 

Freight  bill,  119,  120. 


INDEX 


431 


Freight  cars,  improvement  in,  49 ; 
rates,  methods  of  determining,  271, 
284. 

Freight  service,  111 ;  business  papers, 
119;  commodity  tariffs,  116,  286; 
classification  of,  113,  285 ;  co-oper- 
ative lines,  129  ;  earnings,  97,  111 ; 
compared  with  express,  159 ;  fast 
freight  service,  127 ;  car  mileage, 
131,  132;  car  rental,  pe7'  diem,  132; 
demurrage,  133  ;  income,  97,  111  ; 
milk  trains,  135 ;  private  cars,  131  ; 
rates,  113,  271,  284;  straight  and 
mixed  cars,  126  ;  through  and  local, 
118;  way -freight  trains,  135. 

Germany,  railways  of,  67,  283,  292, 
335,  346  ;  railway  fares  in,  295 ;  pas- 
senger traffic,  140;  freight  rates  in, 
301. 

Gould  roads,  the,  158. 

Government,  relation  to  transporta- 
tion, 7;  relations  to  the  railways, 
307 ;  aid  given  in  railway  building, 
311 ;  ownership  of  transportation 
facilities,  7,  71,  283;  regulation  of 
rates,  72,  202,  259,  270,  279,  291,  321, 
367,  420. 

Grand  Trunk  Railway,  219,  227,  241. 

Granger  laws,  the  so-called,  357,  369. 

Granger  lines,  .58. 

Grants,  public,  as  an  aid  to  railroad 
construction,  27,311,31.5. 

Great  Britain,  railways  of,  65,  67,  291, 
322,  338,  346,  349 ;  capitalization  of 
railways  in,  81  ;  fares  in,  294,  295; 
freight  rates  in,  301 ;  passenger  traffic 
of,  140. 

Great  Northern  Railway,  60,  89, 145. 

Groupings,  territorial,  of  railways,  52, 
258. 

Harnden,    William,  organizes  express 

company,  161. 
Hepburn  Committee,  investigation  by 

the,  237. 
Holland,  railways  of,  336. 


Hospitals,  company,  189. 

Hungary,   railways  of,  292,  335,  344; 

railway  fares  in,  297 ;  freight  rates 

in,  302. 

Illinois  Central  Railway,  27,  19C,  191, 
215;  government  aid  to,  311,  312; 
ownership,  75. 

Illinois  State  Railway  Commission, 
357. 

Immigrant  trains,  144. 

Indebtedness,  76,  78. 

India,  railways  of,  292,  336,  347. 

Individual  aid  in  railway  building,  320. 

Industrial  agents,  268. 

Injunctions,  restraining  charges,  392  ; 
in  labor  disputes,  396. 

Insurance,  company,  189;  department, 
189. 

Interest,  defined,  5  ;  relation  of  trans- 
portation to,  5. 

Inter-railway  relations,  213. 

Interstate  Commerce  Act,  239,  828, 
369;  CommerceCommission,  95,  117, 
202,  205,  367,  372. 

Iowa,  State  Railway  Jommission,  362. 

Ironsides,  Old,  locomotive,  40. 

Italy,  railways  of,  335,  346. 

Jervis,  John  B.,  engineer,  42. 
Joh7i  Bull,  locomotive,  41. 
Joint  costs,  273. 
Joint  Traffic  Association,  245. 

Kansas  Pacific  Railway,   government 

aid  to,  313,  317. 
Kentucky,  laws  governing  railroads  in, 

95. 

Labor  disputes,  388;    injunctions  in, 

396. 
Lading,  bill  of,  119,  122. 
Lake  Shore  Railway,  89. 
Land  grants,  public,  an  aid  to  railroad 

construction,  27,  311  ;  repeal  of,  315. 
Lease,  consolidation  by,  251. 
Liverpool  and  Manchester  Railway,  21. 
Loans,  national  railway,  316. 


432 


AMERICAN  RAILWAY  TRANSPORTATION 


Locomotive,  beginnings  of  the,  20 ; 
first  American,  22,  39 ;  modern  im- 
provements in,  44. 

Machinery  department,  187. 

Mailcars,  97,  173,  176. 

Mail  service,  cost  of,  179  ;  classification 
of  mail  matter,  171,  181 ;  com- 
pared with  express,  158 ;  railway, 
97,  170  ;  part  performed  by  the  rail- 
way, 177  ;  right  of  way,  178  ;  statis- 
tics, 172;   strikes  and  the,  399. 

Manufacturing  interests,  consolidation 
of,  258. 

Markets,  competition  of,  265. 

Massachusetts,  laws  governing  rail- 
roads in,  94  ;  State  Railway  Com- 
mission, 354. 

Michigan,  method  of  valuing  railroad 
})roperty  in,  93. 

Mileage,  railway,  in  the  United  States, 
24,  29,  53 ;  relation  to  area  of  terri- 
tory, 66  ;   relation  to  population,  66. 

Milk  trains,  135. 

Minnesota,  laws  governing  railroads 
in,  94. 

Mobile  and  Ohio  Railway,  government 
aid  to,  311. 

Mohawk  and  Hudson  Railway  built, 
22,  38,  40. 

Monopoly,  extent  of,  in  railway  ser- 
vice, 258 ;  fear  of,  from  pooling, 
239  ;   French  railway,  330. 


National  pipe,  the,  14. 

Net  earnings,  100. 

New  York,  canals  and  railroads  of,  in 
1840,  17. 

New  York  Central  Railway,  22,  26, 
215,  217,  219,  226. 

New  York,  New  Haven,  and  Hartford 
Railway,  145. 

New  Zealand,  railways  of,  847. 

Northern  Pacific  Railway,  60, 89 ;  gov- 
ernment aid  to,  314. 

Northern  Securities  Company,  89. 


Officers,  railway,  184. 

Operating  department,  186;  expenses, 
100. 

Organization  of  railway  companies, 
184. 

Ownership,  classification  of  railways 
by,  60,  75,  78  ;  government,  307,  322, 
427 ;  in  Germany,  335,  337  ;  in  Italy, 
335,  346 ;  in  other  European  coun- 
tries, 335,  344. 

Pacific  railways,  58 ;  charters  of  the, 
73. 

Panic  of  1857,  effect  on  railway  build- 
ing, 26  ;  of  1873,  effect  of,  27. 

Parcels  post,  in  Great  Britain,  166. 

Partnership,  contrasted  with  the  cor- 
poration, 69. 

Passenger-coaches,  first,  46. 

Passenger  mile,  293. 

Passenger  service,  135  ;  advertising, 
148 ;  baggage,  147 ;  class  service, 
141, 150;  commutation  business,  148; 
earnings,  97,  111  ;  effect  of,  on,  155; 
electric  railways,  European,  140; 
excursion  trains,  144  ;  fares,  deter- 
mination of,  in  practice,  289  ;  immi- 
grant service,  144  ;  income,  97,  111 ; 
mileage,  152 ;  passes,  153  ;  Pullman 
and  extra-fare  trains,  144 ;  tickets, 
147 ;  ticket  scalpers,  152. 

Passes,  issuance  of,  153. 

Pennsylvania,  canals,  and  railroads  of, 
in  1840,  19. 

Pennsylvania  Railway,  22,  26,  75,  76, 
130,  190, 192, 193,  215,  217,  219,  226. 

Philadelphia,  Wilmington,  and  Balti- 
more Railway,  built,  22. 

Political  economy,  defined,  2. 

Pooling.  225,  228,  258,  287,  329 ;  oppo- 
sition to,  239 ;  laws  against,  263. 

Poor's  Manual  of  Railroads,  205. 

Production,  relation  of  transportation 
to,  3. 

Promoting,  corporation,  87. 

Prussia,  railways  of,  335,337;  railway 
fares  in,  295;  freight  rates  in,  301. 


INDEX 


433 


Public  lands,  income  from,  309  ;  grant- 
ed to  railways,  811, 

Public  nature  of  transportation,  8. 

Public,  railroads  and  the,  21 1. 

Pullman,  George  M.,  sleeping-car 
designer,  47,  144. 

Pullman  Palace  Car  Company,  145. 

Purchase,  consolidation  by,  251. 

Purchasing  department,  189. 

Rails,  early  forms  of,  18, 34  ;  standard, 
37. 

Railways,   the  first,     18 ;    American, 
beginning  of,   18 ;    growth   of,   24 
in  1840,  17,  19  ;  in  1850,  in  1902,  52 
group    system      classification,     52 
European,  28,  29 ;  stock,  value  of,  in 
United  States,  29. 

Rate  wars,  causes  of,  218  ;  recent,  254, 
392. 

Rates,  agreements  to  maintain,  212 ; 
power  of  the  courts  to  determine 
equity  of,  388;  government  regula- 
tion of,  72 ;  legislation  in  regard  to, 
351  ;  local,  laws  limiting,  267  ;  mak- 
ing, in  practice,  283 ;  relation  to 
monopoly,  262  ;  theory  of,  271 ;  in- 
fluence of  watering  stock  upon,  90  ; 
in  European  countries,  291,  298,  300. 

Reading  Railroad,  built,  22. 

Real  estate,  conveyancer  of,  189. 

Receiverships,  76,  388,  401. 

Refrigerator  cars,  49. 

Regulation,  government,  307,  321,  323, 
367,  386,  420  ;  by  the  State  govern- 
ments, 349 ;  in  France,  330 ;  in  Great 
Britain,  327. 

Relief  department,  189. 

Rent,  defined,  5  ;  relations  of  transpor- 
tation to,  5. 

Reports,  railroad,  196;  incomplete, 
201  ;  demand  for  uniformity,  201. 

Roads,  early  American,  13. 

Roadway  department,  187. 

"  Rocket,'"  Stephenson's,  20,  41. 

Russia,  railways  of,  67 ;  railway  fares 
in,  299. 

29 


Scalpers,  ticket,  153. 

Schools,  engineering,  1. 

Secretary's  department,  185. 

Signals,  railway,  38. 

Sleeping-cars,  47. 

Society,  relation  of  transportation  to, 

8. 
South  Africa,  railways  of,  347. 
Southern    Pacific    Railway,"  60,     88; 

government  aid  to,  314 
Southern  Railway  and  Steamship  Asso- 
ciation, 241. 
Speed,  railway,  means  of  increasing, 

38. 
Stage-coach,  the,  15. 
Standard  Oil  Company,  261. 
"  Star"  mail  routes,  175. 
State  Railway  Commission,  202. 
States,   aid  given  by  the,  in  railway 

building,  308 ;  regulation  by  the,  in 

the  United  States,  349. 
Statistics,   railroad,   where    compiled, 

186, 195,  204. 
Stephenson,  George,  the  Rocket,  20, 41. 
Stocks,  railroad,  78;  consolidation  by 

control  of,  251 ;  watered,  82,  103. 
Stourbridge  Lion,  locomotive,  39. 
Street  railways,  regulation  of,  363. 
Strikes,  rulings  of  the  courts  in  regard 

to,  896. 
Suburban  service,  148. 
Supreme  Court,  decisions  in  railway 

cases,   359,  377,  378,  380,  381,  382, 

386.  389. 
Sweden,  railways  of,  67. 
Switzerland,  railways  of,  68,  335,  344 ; 

passenger  traffic  in,  140. 
Swivel  truck,  the,  42. 

Taxation,  methods  of,  408. 
Technics  of  transportation,  1 . 
Telegraph,  service  to  railroading,  38. 
Terminals,  railway,  50. 
Texas,  laws  governing  railroads  in,  94. 
Texas  and  Pacific,  government  aid  to, 

314. 
Thurman  Act,  317. 


434 


AMERICAN  RAILWAY  TRANSPORTATION 


Tickets,  cut-rate,  152  ;  passenger,  147. 

Toll-roads,  first,  13,  74,  128. 

Tolls,  of  early  railways,  326,  351. 

Tom  Thumb,  locomotive,  39. 

Ton-mile,  293. 

Tonnage,  annual  freight,  112. 

Tracks,  early  railway,  34. 

Traffic  Associations,  228,  232, 242, 247, 

249,  287. 
Traffic  department,  186,  188. 
Tramways,  the  first,  18. 
Transportation,  defined,  1 ;  economics 

of,  2 ;  public  nature  of,  8  ;  technics 

of,  1. 
Transportation  department,  187. 
Trolley,   effect   of   the,  on  passenger 

business,  149. 
Trunk  Line  Association,  236,  241,  244, 

249. 
"  Trunk  lines,"  meaning  of  the  term, 

56. 
Turnpikes,  13,  74, 128,  808,  326,  350. 

Union    Pacific    Railway,   27,  60,   88; 

government  aid  to,  313,  316. 
United  States,  railway  mileage,  24,  29, 

52 ;  groupings  of  the  railways  of  the, 

52. 


Value  of  commodities,  rates  in  relation 

to,   275;    of  railway  stocks  in  the 

United  States,  29. 
Value  of  service,  rates  and  fares  in 

relation  to,  274. 
Valuation,  methods    of    determining, 

92. 
Vestibuled  cars,  48. 

Wages,  defined,  5,  6  ;  relation  of  trans- 
portation to,  6;  relations  of  stock 
watering  to,  90. 

Wagner  Palace-car  Company,  145. 

Watered  stock,  82,  103. 

Way-bill,  freight,  123,  125 ;  express, 
165. 

Way-freight  trains,  135. 

Wealth,  defined,  5. 

Western  Freight  Association,  231. 

Western  Traffic  Association,  241. 

West  Point,  locomotive,  40. 

West  Pomt  foundry,  locomotive  build, 
ers,  40. 

Windom  committee,  the,  of  investiga. 
tion,  367. 

Zone  system,  Austria-Hungarian,  ol 
fares.  292,  297,  302. 


(4) 


THE   END 


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Newark  Evening  News. 

"  A  book  that  can  not  be  too  highly  recommended  to  those  who 
desire  to  know  what  Wall  Street  is  and  how  it  does  its  work." — Wall 
Street  Journal. 

"  It  is  one  of  the  best  books  on  Wall  Street  that  has  ever  been 
published." — Brooklyn  Eagle. 

"  A  well-written  and  generally  thorough  digest  of  the  operations 
of  the  financial  district." — New  York  Sun. 

"  It  has  no  equal." — New  York  Press. 

"  The  most  fascinating  presentation  possible  of  a  subject  of  the 
utmost  interest  to  business  men  and  students  of  economics." — Chicago 
Record-Herald. 

"  Clear,  simple,  direct,  straightforward,  impartial,  and,  above  all, 
informing.  .  .  .  Mr.  Pratt  has  done  a  real  service  in  describing  the 
things  which  the  stock  exchange  accomplishes,  and  its  usefulness  to 
the  nation  at  large." — Boston  Herald. 

"  The  author  knows  the  ins  and  outs  of  the  New  York  stock  market, 
and  the  book  is  veritably  a  mine  of  knowledge  about  matters  very 
little  understood  by  the  public.  .  .  .  Particularly  valuable  are  Mr. 
Pratt's  explanations  of  the  jargons  of  the  street — of  words  and  phrares 
which  to  most  persons  not  actively  engaged  in  the  stock  business  are 
quite  unintelligible." — Philadelphia  Ledger . 


APPLETON     AND     COMPANY,     NEW    YORK 


BOOKS  ON  COMMERCE  AND  INDUSTRY. 


A  Commercial  Geography. 

By  Cyrus  C.  Adams,  formerly  President  of  the  Depart- 
ment of  Geography,  Brooklyn  Institute  of  Arts  and  Sci- 
ences.    i2mo,  505  pages.     Cloth,  $1.30. 

"The  best  text-book  upon  Commercial  Geography  that  has  yet  appeared.  The 
book  may  be  recommended  without  reserve  ;  its  style  is  clear  and  concise ;  the  maps 
are  extraordinarily  good ;  and  the  illustrations  are  numerous  and  direct  from  photo- 
graphs. Mr.  Adams  is  to  be  congratulated  upon  his  work.  Teachers  of  commercial 
geography  are  fortunate  in  the  opportune  publication  of  a  text  so  admirably  adapted 
to  their  TiG^ds.''— The  Journal  of  Geography. 

"  In  breadth  of  treatment  and  systematic  plan  this  book  is  equaled  by  no  com- 
mercial geography  yet  published." — Geographic  Literature. 

"Adams's  'Commercial  Geography'  I  really  think  is  the  best  in  the  market,  and 
I  shall  be  pleased  to  recommend  it  to  my  students." — C.  A.  Wood,  M.A.,  F.R.G.S. 

An  Elementary  Commercial  Geography. 

By  Cyrus  C.  Adams.  Illustrated  with  numerous  Maps, 
Diagrams,  and  Half-tones.      i2mo.     Cloth,  $1.10. 

"Here  is  a  book  of  superior  merit  as  an  elementary  text-book.  It  is  distinctly  a 
commercial  geography  covering  the  globe.  The  terse  way  of  putting  the  information 
is  an  important  feature  of  the  hook."— Journal  oj" Education. 

"  I  consider  the  work  far  superior  to  all  other  works  I  have  examined." 

— George  W.  Schwartz,  Supervisor  o/  Commercial  Sciences.,  Louisville.,  Ky. 

The  Essentials  of  Business  Law. 

By  Francis  M.  Burdick,  LL.D.,  Dwight  Professor  of 
Law  in  Columbia  University  Law  School,  New  York.  i2mo. 
Cloth,  $1.10. 

"A  remarkably  clear  and  concise  summary  of  general  legal  requirements." 

—  The  School  Journal. 
"  No  teacher's  desk  should  be  without  this  book.     It  is  all  that  can  be  desired  for 
school  use."— Journal  oj" Education. 

First  Lessons  in  Finance. 

By  F.  A.  Cleveland,  Ph.D.,  University  of  Pennsyl- 
vania.    Illustrated.     i2mo.     Cloth,  $1.25. 

"The  subject  is  a  most  practical  and  important  one,  and  no  person  can  be  con- 
sidered well  educated  until  he  understands  at  least  the  more  general  facts,  which  are 
fully  described  and  elaborated  in  the  book.  It  is  an  excellent  book  for  study  in  our 
high  schools." — Education  {Boston). 

"  We  have  here  available  for  school  use  more  that  is  worth  while  and  desirable 
than  has  ever  before  been  obtainable  in  one  hook."— Journal  oj Education. 

D.    APPLETON    AND    COMPANY. 

NEW  YORK.  BOSTON.  CHICAGO.  LONDON. 


